Falling import volumes could place a damper on industrial-rental growth

28-06-2016

For now, the current cooling in the growth of retail sales volumes and contracting import volumes do not bode well for the demand for warehouse space to rent, and consequently market rentals.

In April 2016, real retail sales showed yearly growth of only 1%, after recording year-on-year growth of 3% and 4% in March and February 2016 respectively. At the same time, in the first quarter of 2016, import volumes were down by 4%. Note that one has to consider the possible adverse effect that the earlier-than-normal Easter Holidays had on retail sales during April. Yet, given the low levels of consumer confidence and the possibility of more monetary policy tightening, robust growth in retail sales volumes should not be expected.

The corresponding graph shows the very robust inverse relationship between the underlying cyclical component of import volumes and warehouse vacancy rates. Observe ─ from the shaded area of the graph ─ how the cycle of import volumes has trended south since 2012, and how warehouse vacancy rates have edged north.

The graph which follows shows the inverse relationship between industrial warehouse vacancy rates and the growth in Rode’s national prime-industrial-rental index. The reader will observe that rentals have in recent years still been doing quite well, considering the rising trend in vacancies.

In the first quarter of 2016, prime industrial rentals were — on a national basis — up by a yearly rate of 4%. This was still on a par with the expected growth in building costs.

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Technical note:
Any time series can contain some or all of the following components: Trend (T), Cyclical (C), Seasonal (S) and Irregular (I). These components may be combined in different ways. It is usually assumed that they are multiplied or added, i.e. yt = T x C x S x I or yt = T + C + S + I. “Detrending” is the mathematical or statistical operation of removing trend from the series in order to accentuate the other components of the time series. In this article, the import volumes time series was “detrended”, thereby highlighting the cyclical (C) and irregular (I) components of the time series. The time series does not have a seasonal component due to the fact that is of an annual frequency. Any pattern showing an up-and-down movement around a given trend is identified as a cyclical pattern.
Source: http://cmapskm.ihmc.us/rid=1052458821502_1749267941_6906/components.pdf