The second quarter of 2023 witnessed a decline in cargo volume due to additional pullback from retailers with an oversupply of inventory currently warehoused. Despite the cooling economy, investors still have an appetite for real estate but at reduced prices from their highs of 2022.
The first quarter of 2023 witnessed some pullback from investors, warehouse tenants, and outdoor storage companies. Most investors have been sitting on the sideline waiting for the Fed to stabilize inflation and flatten the interest rate increases. The banking crisis of SVB, Signature Bank, Credit Suisse, and First Republic has many lenders concerned and will cause tightened borrowing standards. Despite the cooling economy, there are certain investment companies with an appetite for real estate but at reduced prices from their highs of 2022.
The New Jersey industrial market fundamentals have seen a slowdown, largely due to monetary policy. Interest rates were raised to subdue inflation, making debt more expensive to investors. Initial indications of a cooldown became visible in the fourth quarter as leasing activity slowed. 2022 saw over 10MSF of net absorption. Vacancy availability ticked upward to 3.1% as the availability rate increased to a pre-pandemic region of ±4.35%.
Economic Trends | Unemployment decreased to 3.9% in June from 4.2% in April. Retail sales in the US recorded their first decrease YTD. Inflation will not be restrained by year-end; interest rates will continue their rise. The debt markets are expected to be punished over the next few quarters. Unemployment is also expected to increase over the next few quarters.
Economic Trends | Unemployment decreased to 3.9% in June from 4.2% in April. Retail sales in the US recorded their first decrease YTD. Inflation should be restrained by year-end; however, the debt markets have taken a beating over the last few months. Unemployment is expected to slow; however, wage growth continues to increase which will continue to put pressure on inflationary conditions.
Economic Trends | Inflationary trends would suggest that the current rate is higher than the 7% provided by the federal government. The robust economic growth, workforce shortages, production costs, and hampered supply chains are a few causes of inflation. The US economy contracted an annualized 1.5% on quarter in the first three months of 2022. Net exports declined, pushing the US GDP in March lower by 0.4% (following a flat reading in February) due to the surge in imports led by non-foods and nonautomotive consumer goods.
Economic Trends | Most economists forecast inflation to moderate by the second half of 2022. Consumer purchases of durable goods soared to almost 30% above pre-pandemic levels before starting to decline in the second half of 2021 but such commodity prices happen on occasion and don’t always lead to systemic inflation. Covid-19 continues to disrupt the economy with its new variants, however sturdy income growth, robust consumer spending, and elevated business investment support GDP growth.
Economic Trends | Consumer spending rose 0.7% in September month-over-month. Sales at retail stores, restaurants, and online sellers have reflected continual durable demand even with higher consumer prices. Due to stimulus payments and rising wages shrugging off the Delta variant, the end of unemployment benefits, and emerging supply constraints. Retail sales rose close to 14% in September year-over-year while consumer inflation increased 5.4%. Economists are cautiously optimistic; however, concerns remain with the disruption to the supply chain backlogs and a slowing labor market recovery once the unemployment benefits dissipate.
GDP growth is expected to surge to 6.4% in 2021. In the first quarter, government assistance payments, such as direct economic impact payments, expanded unemployment benefits, and Paycheck Protection Program loans were distributed to households and businesses through the Coronavirus Response and Relief Supplemental Appropriations Act and the American Rescue Plan Act according to BEA. A sign of confidence that the world’s largest economy remains confident that it will pull through the pandemic better than others is that foreign investors have been pouring money into US assets.
The recorded losses in many sectors for real estate due to CoVid-19 have been dramatic however the industrial sector has been remarkably resilient. E-commerce, third-party logistic, food and beverage and cold storage companies have all performed well throughout the pandemic. Net absorption this quarter (8.3MSF) outpaced deliverers (5MSF), vacancy rates decreased (3.9%), and rental rates growth has risen exponentially (almost 30% increase in the last three years alone). The pandemic has enhanced the importance of the logistics industry, consumers spent nearly 212B through ecommerce – online purchases accounted for 16.1% of all retail sales accelerating online appetite by consumers due to the pandemic has triggered the ecommerce footprint to expand.
The pandemic is evolving every day and its ultimate impact is not yet clear. Similar to the Spanish flu in 1918, this virus has generated a shockwave that has halted the global economy. Each state as well as the White House administration have been working diligently to ‘flatten the curve’ by social distancing, stay at-home measures, among others. Medical and other first responders have been risking their lives each day to continue the supply chain and keep people healthy.
Downward pressure has been placed on wages and prices as a result of high unemployment and excess capacity. We are facing grocery inflation, according to statistics released by Nielsen. The economic landscape continues to be dominated by historic declines in just about every significant category. Despite horrible economic data, the equity market rallied at the end of the first quarter. On top of the CARES Act, which will provide $2.3 trillion in fiscal stimulus, the Federal Reserve has expanded its balance sheet by $2.4 trillion to over $6 trillion. Due to the CoVid-19 events and incredible amount of loss of jobs, the 2Q20 could see one of the largest dips in GDP in US history.
The NJ industrial market continues to be attractive to most investors with a limited supply. Amazon leased close to 2MSF this quarter and expect additional absorption in 2021. Northern New Jersey’s vacancies have declined below their historical average. Developers ramp up projects as demand continues to exceeded supply.
The NJ industrial market continues to be attractive to most investors with a limited supply and interest rates remaining historically low. We foresee further growth in the industrial sector. Strong demand and limited supply additions have helped Northern New Jersey’s vacancies drop below their historical average. Tenant losses were the norm here following the financial crisis, but demand has trended positive for the last several years. Developers haven’t been able to keep up, as demand has exceeded supply in every year since 2013.
Online sales growth continues its surge. Due to the demographics of the New York metropolitan region, big box warehouse and infill product will stay in demand for eCommerce and Logistic firms. Goods will always be needed where people live and Customers will continue to want low prices, fast delivery and a vast selection which in turn will drive the New Jersey industrial market forward.