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Econometric Advisors' blog

Industrial Forecast: Q2 2020

Aug 11, 2020, 12:05 PM by Ibrahiim Bayaan

Despite unprecedented weakness in the macroeconomy, industrial trends held up relatively well in the second quarter. GDP fell at a record-low annualized 32.9% pace in Q2, as COVID-19 fears and lockdowns led to sharp declines in employment, manufacturing, and retail activity early in the quarter. Conditions in the macroeconomy began to rebound in May and June as states began to ease restrictions but remain well below pre-crisis levels.

These macroeconomic challenges had some small effects on industrial trends in Q2. Industrial availability rose by 0.3% to 7.6% during the quarter as net absorption fell to a 9 ½ year low of 18.8 MSF. The TW Rent Index also fell slightly, dropping to $6.85 from $6.88 in Q1.  

Still, the slowdown in industrial activity was better than expected headed into the second quarter and underscores the sector's resiliency in the face of an unprecedented collapse in overall economic activity. E-commerce activity surged during the quarter and is likely to prevent severe declines in demand in upcoming quarters as businesses look to expand their online capabilities.  

As a result, forecasts for rent, availability, and absorption have all improved in Q2 for the remainder of 2020. Rent growth in the sector is likely to slow over the next few quarters but is still expected to be 1.8% higher than 2019 by the end of 2020. Availability is likely to continue to rise as weaknesses in retail and manufacturing drag on the sector, but is now projected to peak at 9.0% before improving close to pre-crisis levels in outer years.

Beyond 2020, the pace of recovery in the macroeconomy is expected to be slower than we previously projected, and the recent surge in COVID-19 cases raises the likelihood that the U.S. falls back into recession. However, e-commerce is expected to maintain much of the share that it gained during the pandemic, even as the economy returns to more normal conditions. This should pave the way for low availability, healthy demand and solid rent growth over the next several years.





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