How Does This Industrial Slowdown Compare to 2009?

Holland says current manufacturing availability is 148% greater than that of Q1 2009.

HOUSTON—How does the current slowdown in Houston’s industrial market compare to that of the 2009 Great Recession? To answer that, it is necessary to look at changes in availability and leasing activity between these two downturns, including differences among flex, manufacturing and warehouse/distribution buildings. By indexing the data to the first quarter of 2009, at which West Texas Intermediate (WTI) had the lowest average monthly price during the Great Recession, rates of growth (or decline) in availability and leasing activity can be compared, particularly given the different magnitudes of values of these variables among flex, manufacturing, and warehouse/distribution buildings, according to a report by NAI Partners . The bottom in WTI prices is similar between 2009 and the current downturn, says the report. That is a 70 to 75% drop from peak to trough. Availability is currently 9.1% for all industrial products combined, which is about 1% less than the peak following the 2009 recession. It took about three to four quarters following the WTI bottom in first quarter 2009 for availability to increase and stabilize at 10%. It is not likely that availability will stabilize for another two to three quarters given WTI’s bottom was likely in first quarter 2016, says NAI. J. Nathaniel Holland , Ph.D., chief research and data scientist, NAI Partners, tells GlobeSt.com: “Though not yet having the impact on Houston’s overall economy, the current downturn in the oil industry─as measured by changes in rig counts and WTI prices─has been as deep and strong as that of the 1980s and the 2008 to 2009 Great Recession. Analyses in this study show that various products in Houston’s industrial market (manufacturing, flex, warehouse/distribution space) vary quite differently from one another in response to such local and national economic drivers. For example, availability of manufacturing space today tends to be the lowest among the products, or around 2 to 7% of total inventory. Yet, current manufacturing availability is a whopping 148% greater than that of Q1 2009 when WTI prices bottomed out during the Great Recession. In contrast, availability in flex space has increased from 9.7 to 11% since 2015, but this equates with a decrease of 28 to 36% in availability compared to the Q1 2009 WTI bottom. And, warehouse/distribution space is only up about 7% compared to Q1 2009 when WTI prices bottomed out during the Great Recession.” The report says leasing activity in the current slowdown has had more volatility than following the 2009 crash in oil prices, more for manufacturing than flex and warehouse/distribution. Overall, the current state of Houston’s industrial market is within the bounds of the 2009 pullback, but some key differences occur among flex, manufacturing, and warehouse/distribution space that push these bounds.