How do these Tumultuos Times effect Industrial Real Estate?

It has been a rough start to the 4th quarter with news of historic storm damage from Hurricane Helene and Milton.  Beyond that, war in both Ukraine and the Middle East create additional uncertainty. Currently there are more than 45 armed conflicts in the Middle East and North Africa alone, and another 35-armed conflicts in other regions of Africa, as reported by Geneva Academy.

Investopedia.com reports the following storm statistics last week:

• About 2.8% of the U.S. Gross Domestic Product lies in the path of Hurricane Milton, one estimate showed.

• The analysis showed that while it is difficult to calculate, Milton could have a measurable impact on GDP.

• Atlanta Fed President Raphael Bostic said he was monitoring the economic impact of recent storms in his district and warned that increased insurance costs from weather disasters were becoming a “big problem.” 

While inflation is now down to an annual rate of 2.4%, the interest rate increases of last two years have managed to keep a lid on meaningful investment activity in most commercial real estate sectors.

In Salt Lake City we continue to see improvement in our industrial sector, with diminishing sublease space availability and inventory in smaller space increments tightening.  In fact, overall net absorption outpaced construction deliveries at mid-year according to our friends at Newmark.

Anecdotally, manufacturing interest and activity is buoyant. At IPG we are tracking several manufacturing requirements currently surveying the market with anticipation of making deals in the next 6 to 12 months.

Our anticipation is that the market will continue to favor quality tenants with notable leasing incentives for at least the next two quarters. Building owners are advised to do what they can to make the best first impression for prospective tenants.

Considerable viability in larger increments of warehouse space over 200,000 will be the “blue light special” for groups consolidating, expanding, or renewing leases. 

While consumer sentiment in Utah is slightly off that of the national trend, that conservatism is part of what has created long term stability and viability here in Utah. We predict a return to balance in the next 12-18 months.

Whether your industrial real estate needs lead you to Utah, or any place else in the Nation or the Globe, IPG can help navigate through the unknowns and uncertainties.

Reach out and let us know what you are experiencing

Choices Favor Tenants!

Its been quite some time, but its fair to say that in most markets across the country industrial tenants have more choices now than they have in several years.  In the Salt Lake metro market between 100-300,000 square feet there are over 30 unique buildings to consider for lease.  While there are a handful of markets in North America that have avoided this trend, it is more likely due to land constraints or a disconnect between achievable lease rates and prohibitive development costs to bring new product to market.  If you occupy a building with a lease coming up in the next 24 months you may want to seriously consider options as you contemplate a lease renewal.  Give us a call and we will get you on the best path forward.

Commercial Parking Shortage

Recent studies show significant pressure on the nation's commercial parking shortage due to the thriving retail sector, with online retail sales surging 85 percent. This surge has led to a multiplication of delivery vehicles needing parking spaces, resulting in congestion and record financial losses of $95 billion in 2021, driving up demand for industrial outdoor storage (IOS) facilities. The West faces the largest challenge, with limited truck parking availability leading to expensive pricing for IOS sales, while the Northeast struggles with lopsided truck-to-parking spot ratios. Seeking cost-effective solutions, many IOS facilities are being repurposed into multi-faceted service properties to meet the demand for consistent parking, reducing tenants' downtime and offering lower maintenance costs compared to traditional warehouses. Despite the scarcity of new IOS properties, opportunistic investors and industrial property managers are repurposing dirt lots into sophisticated commercial parking and storage solutions, driving an evolution in the market and prompting larger firms to explore ripe opportunities.

Tightened lending practices

Commercial real estate lenders have tightened their lending practices in response to increased risk and higher capital costs, reducing loan-to-value ratios universally. CMBS providers have notably decreased LTVs by 14% from 2015 to 2023, while the average loan size has doubled during the same period. This shift requires more equity from investors to close deals, presenting opportunities amidst changing financing dynamics in the CRE market. Despite the trend, some anticipate a return to higher leverage as interest rates normalize, although the permanence of this change remains uncertain. The adjustment reflects a broader transition in the market as it adapts to a new reality following years of low interest rates and significant monetary support.

Trajectory Remains Positive

Despite facing challenges in the first quarter of 2024, the industrial sector remains relatively strong and resilient. While data indicates a slowdown in net absorption compared to previous years, there are positive indicators for future growth, including robust demand for new data centers, industrial and manufacturing spaces, and infrastructure projects. The surge in e-commerce during the pandemic has provided a solid foundation for the industrial sector, with consumer expectations for quick delivery driving continued growth. Additionally, onshoring of manufacturing and a focus on diversified supply chains further bolster the industry's outlook. Although building and inventory expansion may be delayed until there is some relaxation in interest rates, the overall trajectory for industrial remains positive and poised for an eventual upsurge.