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“The only function of economic forecasting is to make astrology look respectable.” — John Kenneth Galbraith
2008 Forecast: Construction Spending Should Rise after a 2007 Decline
The construction consulting firm FMI projects that $21.2 billion of nonresidential building in 2008 will use "green construction" methods. From a broader perspective, in "The 2008 U.S. Market Construction Overview," the company "forecasts a 5.8 percent growth of construction put-in-place for the coming year, although it was down 3.7 percent in 2007." The publication anticipates a rise in employee ownership of construction companies, major productivity gains and a significant rise in the percentage of the construction workforce filled by Hispanics. The full report can be purchased from FMI.
2008 Forecast: Industrial Real Estate Should Hold its Own
We know the economy is sluggish and could stumble this year. But the outlook for commercial real estate is not all bad; some components could actually benefit from recent economic changes. Grubb & Ellis' "2008 Real Estate Forecast" reviews 2007 and then provides predictions, along with supportive reasoning, for 2008. The report says, "The industrial vacancy rate changed little through 2007, a sign of market equilibrium. High-velocity construction pipelines were met with surging demand for space, particularly around seaports and inland distribution hubs such as Los Angeles and the Inland Empire, Dallas/Fort Worth and Houston, Atlanta, Chicago and eastern Pennsylvania. Massive amounts of new warehouse construction in some of the major markets kept a lid on rental rate increases...." On the positive side for 2008, the forecast explains that "the weak dollar is supporting demand for manufacturing space, while the expanding tech sector is boosting demand for R&D/flex space. Expect the market to remain largely in balance over the next few quarters. Greatest risk: The global economy, which boomed in 2007, slows in a delayed reaction to the weakening U.S. economy."
2008 Forecast: 10 Predictions for Manufacturing
The long-term trend in manufacturing is toward more of this being done in lower cost locations, such as India, China and Eastern Europe. Beyond this, however, major changes are under way in the goods producing sector, many of which involve the use of high technology to cut production costs and improve the supply chain. The Reliable Plant article "Study Predicts What's in Store for Manufacturing in 2008" reports on a study by the company Manufacturing Insights that gives what it says are the 10 most important expected changes in manufacturing for 2008. Some of the cited trends include the following:
"Information technology organizations will accelerate spending on collaborative decision environments and incubate multi-enterprise business networks;
"IT spending in the supply chain area will focus on fulfillment execution;
"Product management software investments will be geared to integrating processes, not automating tasks;
"Manufacturing firms will tackle the challenges of aging/emerging workforces with investment in organic knowledge management and;
"Machine to Machine (M2M) technology will emerge as a key enabler to enhanced service delivery."
The full report is available from Manufacturing Insights, but requires registration.
2008 Forecast: Business Travel Costs Expected to Rise
The big travel-support company American Express is forecasting significant price increases for both air fares and lodging costs for the business traveler. Regarding air travel costs, the company says, "The biggest price increase is expected in international air prices, which are forecast to increase 7-10 percent in 2008. That is largely due to growing travel demand, increasing operating costs and the high price of fuel. Prices for domestic flights are expected to increase an estimated 2-5 percent as carriers deal with growing demand and limited seat capacity." Inflation of lodging costs will be substantial too. On this, the company predicts, "In 2008, hotel stays are expected to rise 5-7 percent for mid-range rooms and 6-8 percent for upper-range rooms due to high demand and very little supply growth. With the hotel industry growing and building plans not likely to keep pace, the overall cost of hotel stays will not only increase but corporate discount opportunities may be limited and minimum and maximum stay requirements may be applied."
“One of the lessons of history is that nothing is often a good thing to do and always a clever thing to say.” — Will Durant
Year in Review: Industrial Vacancies Failed to Improve Last Year
Raymond Torto
Source: www.cbre.com
The CB Richard Ellis affiliate Torto Wheaton Research tracks commercial real estate markets and finds signs of distress in late 2007 and early 2008. In a press release entitled "Office and Industrial Markets Stall, Retail Deteriorates," the firm says, "The two sectors tied to the business side of the economy-office and industrial properties-showed essentially no improvement in occupancy. The industrial sector ended the year at the same 9.4 percent vacancy rate it began with, and the office sector fell 10 basis points to 12.5 percent." But taking a longer term view, both sectors are improving: "The office market has seen vacancy rates declining since the second quarter of 2003-about 4 1/2 years-and the industrial market has been consistently improving since the first quarter of 2004." Looking at market dynamics, Torto Wheaton Research explains, "Vacancy increases in both sectors show larger increases in those markets that have been strongly affected by the recession in housing. For instance, Orange County, CA, the home of many sub-prime lenders, has seen its vacancy rate rise from 8.3 percent to 14.5 percent.
Year in Review: Office Vacancy Rates Headed Up
Jennifer Forsyth's Wall Street Journal article "Office Vacancy Rate Rises for the First Time in 4 Years" documents an effect the weakening economy was bound to have sooner or later. Forsyth says, "Coupled with last week's disappointing employment report, the weak office-market figures are another signal the nation's economy is weakening and possibly heading for a recession. Only last summer, commercial brokers were warning tenants that they needed to sign leases quickly at top rents because space was scarce. Now, businesses in many markets are delaying leasing decisions in expectation that rents will fall." The article points out that "Nationally, the office vacancy rate — as measured by 79 metropolitan markets — rose to 12.6 percent at the end of the fourth quarter from 12.5 percent at the end of the third quarter, according to Reis, Inc., a New York real-estate research firm." But some office markets continue to thrive. Forsyth writes, "Landlords were able to raise rents substantially in some cities on the East and West coasts. Boston saw average effective rents — or the price tenants pay after concessions — jump 4.9 percent in the fourth quarter, and New York City's average rose 3.9 percent. Denver and Houston showed similar gains."
Year in Review: IPOs Show Scant Growth in 2007
Year-to-year growth of initial public offerings (IPOs) is a leading indicator of investors' confidence in the near to middle-term future. If so, investors are wary. The Hoovers business information service tracks IPOs and has found that "the number of U.S. initial public offerings increased just two percent for 2007 compared to 2006. In all, 209 companies went public in 2007 on the stock exchange, compared to 205 in 2006." Hoovers' IPO Web site also gives the number of IPOs by industry along with each industry's share of the total. And it ranks IPOs by return and provides the percent yield.
“I gather, young man, that you wish to be a member of Parliament. The first lesson that you must learn is, when I call for statistics about the rate of infant mortality, what I want is proof that fewer babies died when I was Prime Minister than [before] ...” — Winston Churchill
Primer on Applying Metrics to Corporate Real Estate
Source: Jones Lang LaSalle
Metrics are selected statistics for focusing management and operational attention on crucial goals. Metrics can increase accountability, provide real time progress readings, and prevent management attention from wandering. The Jones Lang La Salle white paper "Measuring Up: Making Performance Management Work" provides a six-step process for developing the fewest metrics capable of keeping a corporate real estate department focused on board-established corporate goals. An abstract published with the paper says, "This paper presents a process for planning and executing performance measurement that is formulated solely on strategic business objectives. Good performance measurement systems create a direct line of sight between corporate real estate (CRE) goals and stakeholder interests. The right metrics support predictable, reliable service delivery and fact-based decision-making. With better data, real estate leaders can confidently focus on the activities that truly matter to the organization's success and compellingly communicate value in the terms senior management most wants to hear. When performance measurement works, it not only validates CRE's contribution, but also enables better insights and recommendations about the strategic impact of real estate."
“Now, ... it appears that companies are disregarding the fact that serious labor shortages persist, and are deciding to trim their workforces after a merger or acquisition.” — John Challenger
Labor Shortages are Global
Source: www.sustainablescale.org
Labor shortages can result when an economy changes faster than new workers can be trained and when population growth slows so that there are insufficient young people to fill the jobs of those retiring. An article by Stephen Poloz of Export Development Canada says, "Perhaps the bigger problem is that global population growth is on the decline. Population growth averaged two percent per year in the 1960s and 1970s and has been easing ever since. Growth was 1.2% percent for the past five years, and this is projected to fall to as little as 0.4 percent by the 2040s. Some countries are already experiencing population declines, such as Japan, for example." In some industrialized countries, population is declining. Poloz gives this example: "Czech companies no longer talk about the shortage of skilled people; they talk instead about the shortage of people, period. They are willing to do all necessary training themselves. They have gone on recruiting missions to such places as Vietnam or Belarus but are finding that channel of growth to be very costly and difficult to plan." For companies facing such a situation, the author recommends this: "Grow the company without labor force growth. That means increasing automation in domestic plants, relying on only the most skilled workers, and expanding the business in other countries. A global production structure, facilitated by international trade, is the quickest route to higher productivity growth, as experience in the U.S. illustrates."
“Speak the truth, but leave immediately after.” — Slovenian proverb
Getting the Truth about Lift Trucks
Source: www.aw-systems.com
For those responsible for warehouse operations, there's nothing funny about lift trucks. They are important and expensive. But the name of a Web site dedicated to lift truck comparisons, www.trucktruth.com, is odd if not humorous sounding. In fact, the site is serious, providing test reports on several lift-truck models. And it defines and explains the five performance factors a buyer (or lessee) should evaluate in deciding which one to buy (or lease): serviceability, dependability, cost of operations, productivity and ergonomics.
-- Joel Parker
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IAMC Notes