10/10/2012 | by
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Industrial Sector Supported by Underlying Demand

Latest reports on the industrial sector have been "surprisingly positive," according to Calvin Schnure, NAREIT's vice president of research and industry information. The uptick in the industrial sector was in contrast to the relatively weak macroeconomic news recently released.

Manufacturing softened through 2011 and Schnure pointed out that this is the first reasonable increase that the sector has had so far this year. He said the ISM Manufacturing Survey rose to 51.5 in the September reading which indicates an expansion in industrial output.

"We also saw the recent news on auto sales which rose to almost a 15 million unit annual  rate, which is getting back closer to the long term trend over the past 15 years prior to the crisis," he said in an interview with REIT.com at NAREIT's headquarters in Washington. "There have been two steps forward and one step back but we're seeing a better data flow out of manufacturing lately."

Schnure said that the report was positive but it was not strong, and doesn't necessarily suggest a lot of near term improvement. However, he pointed out that the report does show the potential for further gains down the road, particularly when it comes to motor vehicles.

"Auto sales have been running well below their replacement demand for the stock that's out there," he said. "The average ages of cars on the road are older, and there are fewer cars on the road. There's a pent up demand that's going to be a strong force for the industrial sector."

That demand will have a number of effects on commercial real estate that will help support the sector for the remainder of the year and into 2012, Schnure explained. The motor vehicles and its entire supply chain, along with other industrial products that have a similar durable cycle, will benefit from the pent up demand. 

"There are indirect effects as well. One of them is that the macroeconomic impact of greater sales in the sector means there's going to be greater employment. There will be hiring and that's going to give the overall economy a little bit of momentum going forward," he said.

Schnure explained this is one factor that gives a long term investor another reason to say why real estate is a good investment proposition.