As manufacturing dwindles, office a better commercial investment

According to BlueScope Steel business, governments, industry associations and unions need to share responsibility for its recent decision to reduce (by 50%) Port Kembla's production capacity.

However, this attempt to distribute blame serves only to deflect attention from the more fundamental (and structural) changes occurring within the manufacturing sector as a whole.

Within his new book The Next Convergence, Nobel laureate economist Michael Spence makes some telling forecasts.

In his view, developing economies like China, India and Brazil (which house about 60% of the world's population) will reach “advanced status” by 2050-60.

And the current problems facing the West — excess debt, over-consumption and poor banking practices — are not merely a cyclical aberration.

Rather, they reflect permanent structural changes resulting from globalisation and technology — which are providing a shift in competitive advantage towards these developing countries.

However, as Alan Mitchell pointed out in a recent AFR article: "It is the resources sector that is allowing Australia to profit handsomely from the industrial revolution in Asia. And it is the services sector that employs 80% of the workforce and produces 80% of our gross domestic product."

Both these sectors employ a far greater proportion of uni graduates than does the manufacturing sector. And it is the resource and knowledge-based sectors that hold the key to Australia's competitive advantage going forward.

Clearly the growth of mining and the reluctance by consumers to spend are both adversely affecting manufacturers. And the Australian dollar is also likely to remain high for the foreseeable future.

Bottom line: It's not all bad news!

This shift in resources from the unprofitable manufacturing to mining allows us to capitalise on Asia's extraordinary growth. Plus, higher savings levels means that households will be better cope with any future global crises — as well as avoiding further rates rises, and an even stronger dollar.

Furthermore, the resultant growth in the service sector will also need to be accommodated — creating increased demand for office space within our capital cities.

Chris Lang is an advisor to commercial property investors and gives keynote speeches and regular seminars on the best way to invest in commercial property. He maintains a blog, his-best.biz, which he updates regularly about the best way to get the most out of your commercial property investment.