MANUFACTURING OVERALL VACANCY RATES VS. RENTAL RATES
- Manufacturing expanded in June as the PMI™ registered 50.9 percent, an increase of 1.9 percentage points when compared to May’s reading of 49 percent. June’s reading of 50.9 percent reflects the resumption of growth in the manufacturing sector for 2013, following the only month of contraction for the year in May.
- After climbing to $5.86 per-square-foot in 2008, asking rental rates for manufacturing space declined by 20% to $4.89 psf in 2010. Since the end of 2010, asking rental rates have increased by 4.7% to $5.12 as of the second quarter of 2013. Given our expectation for accelerating growth, we see rental rates increasing in most manufacturing markets through 2016.
- In terms of demand, from 2008-2010, overall absorption for the national manufacturing sector averaged negative 17.9 msf. For 2011 and 2012, absorption averaged 7.0 msf of positive absorption.
- Although China’s share of global production nearly doubled over the last five years, its rising labor and energy costs are beginning to impact sourcing. Re-shoring is likely to gain traction as the “total landed cost gap” of offshore manufacturing narrows, and labor costs become more globally balanced. High oil prices, the natural-gas boom in the U.S., increased risks associated with natural disasters and economic instability in emerging markets are other factors that support re-shoring. Concerns about the theft of intellectual property also play into the trend, particularly for high-tech manufacturers.
- The recent announcement that Motorola would hire about 2,000 people to build the smartphone at the AllianceTexas development in Fort Worth is the latest example of re-shoring. U.S. automakers, along with many of their foreign competitors, already have shifted production to Mexico and the U.S. Southeast to take advantage of tax incentives and a more competitive labor market, and to reduce the threat of supply chain disruptions. Whirlpool, Caterpillar and General Electric are just some of the major manufacturers that have followed suit.
Sources: Cushman & Wakefield Research. Institute for Supply Management. Only markets tracked by Cushman & Wakefield offices are included in this analysis. Rental rates are direct rents.