Weak Dollar A Break for Industrial Owners?

If you've filled up your tank in the last week, you've probably noticed that gas prices have shot up recently.  Prices at the pump are up 8 cents per gallon on average across the country from a week ago as a result of the surge in crude oil.  It's no coincidence that gold prices are also at their highs along with other commodities.  Resource-rich emerging economies like Russia and Brazil are seeing a flood of investment from U.S. investors.  The rally in these assets and capital outflows is due in large part to a weak U.S. Dollar.  The expectation that the Fed will continue with loose monetary policy suggests that this weakness will hold and perhaps even worsen for some time to come.  We all cringe when we have to pay more at the pump, but this could be positive for those of you who own industrial real estate.

Like other property types, industrial real estate values have deteriorated in the sluggish economy.  Two factors in particular weigh heavily against the industrial sector: continual trade imbalances and a slashing of inventories by wholesalers and retailers.  Although the U.S. trade imbalance steadied for much of 2009 due to the recession, imports again began outpacing exports for the first half of 2010.  Trade in either direction supports transportation facilities, but weak exports do not bode well for manufacturing facilities, which are an equally important component of industrial real estate.  As consumers began to curb spending through the recession, wholesalers and retailers began slashing inventories, lessening the need for warehouse facilities.  Easy monetary and a weak U.S. Dollar, though, could help counter the hit industrial real estate has taken.

If U.S. goods are sufficiently inexpensive for foreign markets, our exports may begin to rise to a point where industrial facilities are needed not just for products coming in, but products leaving our shores as well.  Additionally, wholesalers and retailers that serve foreign markets may need to start stockpiling their products once again, fueling the need for warehouse facilities.  Perhaps this is the outlook that led to the Blackstone BX acquisition of ProLogis PLD assets last week.  I may just be looking for the silver lining in the dark cloud that has grown over industrial real estate in the last year, but it appears that the Fed's plans for U.S. money supply might favor industrial real estate.