Online retail sales surged over 40% in 2020 fueled by the Coronavirus pandemic. With overall easing of pandemic rules and society getting back to school, work, and leisure activities we …
Industrial real estate, and more importantly, logistics real estate, serves as the conduit everyday consumers have become accustomed to receiving goods and services. Warehouses provide for product storage, truck terminals and distribution centers bring the product one step closer to the consumer while storage yards for trucks, trailers, and containers allow for the aggregation of equipment necessary to match the product to the consumer. The consumer, however, is the catalyst that dictates how each of these components thrives or declines, and ultimately interacts.
We have all recently heard in the media about the looming Tariff war between the US and China, and how it will cause a massive recession and ultimately lead to the downfall of America. To say that the assessment made by the media outlets is an exaggeration, would be the understatement of the century.
American importers pay a significant portion of the increase and US consumers pay the remainder due to the increase on goods manufactured in China. However, China’s economy is slowing, with consumers holding back and infrastructure spending slowing sharply. This slowdown is expected to worsen as America’s tariffs ramp up. On the other hand, the United States has continued to experience vigorous economic growth, including the lowest unemployment rate since 2000.
The online e-commerce shopping boom sure has put a dent in retail and commercial real estate space as a whole, but is the damage getting worse or can industrial real estate bounce back and remain solid? The next downturn in CRE will be catalyzed initially by a stagnant economy and low growth, followed by multiple years of mild-to-escalating recession, credit re-rating, and demand for higher risk premiums by capital providers. Income growth will slow or go negative in the medium term, cap-rate compression will cease, and finding new tenants will be very difficult. With this happening, we will also witness aging demographics and subtle changes of consumption baskets and lifestyle, that revolutionize the format of office and retail.
Industrial rental rates have skyrocketed in urban areas due to the boom of e-commerce. The demand for third-party logistics, also known as 3PLs have increased substantially. This has driven up rental rates in the industrial market. The industrial market in New Jersey alone has increased 11% year over year. The question of sustainability of rental increases emerges.
New Jersey is a very difficult market in which to be an effective industrial real estate broker. Not only is there tremendous competition from other brokers, some landlords are pushing to do deals directly with users, and a lack of inventory compounds all the other issues we come across daily.