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.
Formula 1 has turned the eyes of the world onto growing American cities. With eyes comes tourism, and with tourism, comes infrastructure, jobs, and growth. F1 has smartly partnered with American cities destined for growth, and tech companies have followed suit.
It is evident that there is a direct correlation between inflation and the pricing of commercial real estate. Often, the “cure” to inflation is an increase in federal interest rates which have a direct impact on commercial real estate valuations. Economists have been expecting an increase in interest rates but were not expecting the federal government’s recent suggestion of three potential hikes in 2022. Additionally, there are rumored hikes in 2023, and more in 2024. The message is clear: due to the rapid inflationary pressures, driven largely by supply chain disruptions, the Federal Reserve has an aggressive plan to increase these rates.
The parallels between the last real estate run and this are hard to ignore; the record prices, the bidding wars, warehouses being leased before they’re built, the off-market transactions that …
Expect 2021 to perform across all sectors. We are finally getting optimistic results from the Covid vaccines and will be back to business as usual in no time.
Stay healthy and remain positive. Next year will be much different.
We can spend all day long talking about cap rates, interest rates, and investment sales, but at the end of the day the trends begin with the renters and everything else follows suit. So what are our renters up to?
The industrial market will remain strong, as COVID-19 has taught us that e-commerce remains vital, especially in a pandemic.
Overall, the commercial real estate market did well in 2019 and depending on what market you were in, it did very well.
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.
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.
The NJ industrial real estate market has now been in a bull market since 2013. Prices have seen levels that were thought to be untouchable, as short as five years ago. Inventories are still relatively low and the question on everyone’s mind is, “Where do we go from here?”