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Construction Surge Threatens Key Industrial Markets
Industrial real estate markets are bracing for a potential turbulence, mirroring the pressures seen in multifamily housing.
Jordan B.
June 09, 2024
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Good morning. Welcome to the weekend edition of CRE Daily.
📰 Feature: Turbulence ahead for some industrial markets
⏪ Catch up: The most-read stories from the week
👍️ New Reviews: PropertyShark, Agora, & AirGarage
📈 Chart: Commercial real estate values through the GFC
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PROPERTY REPORT
Construction Surge Threatens Key Industrial Markets
Multifamily markets in the South and West are struggling with vacancies and slower rent growth. These industrial markets might be next.
Too much supply: According to CBRE, major industrial markets like Dallas-Fort Worth, Riverside, Atlanta, and Houston are set to see a significant rise in new constructions this year, pushing availability rates to record highs.
Source: CBRE / Figure 1: Under-Construction Pipeline, Share of Pipeline Due This Year and Thereafter, Top 15 Markets (MSF)
Leading the way: Phoenix leads the nation with 33 MSF under construction, with a third not completed until after 2024. This trend could drive availability rates past 12% next year. Savannah and Austin also stand out with supply pipelines nearing 12% of inventory, marking them as the only markets with double-digit supply growth.
Conflicting signals: Contrary to CBRE's caution, Prologis reported strong April demand with 85% facility utilization, up from 83% in late 2023. Despite high import volumes, sales outpaced inventory growth, indicating more inventory is needed. However, the net absorption of 26 MSF missed expectations, hinting at unrealized demand in logistics real estate.
➥ THE TAKEAWAY
Looking ahead: This surge in construction is forcing landlords to adopt aggressive leasing strategies as pre-leasing rates for completed buildings have dropped significantly from over 70% in 2021 and 2022 to 32%. CBRE says the good news is that developers are finally showing more discipline, and construction starts have fallen to their lowest point in the current cycle.
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⏪ Weekend Wrap-Up
Catch up on the most clickworthy stories of the week.
Slight uptick: The Green Street Commercial Property Price Index® rose 0.7% in May, up 1% for the year but still 21% below its March 2022 peak.
Hochul halts tolls: NY Gov. Hochul indefinitely halts the proposed $15 Manhattan congestion toll plan right before it was set to start, citing changed circumstances affecting NY’s recovery.
Redefining limits: Starwood REIT (STWD) lowers withdrawal limits, hoping for a 6-month cap benefiting 80% of shareholders, as it faces liquidity challenges.
Labor market lows: Job openings fell by nearly 300K in April to 8.06M, down almost 19% YoY, signaling potential labor market weakening.
Nursing home nightmare: Florida's largest nursing home operator, LaVie Care, files for bankruptcy for the second time, citing $1B in assets and $10B in liabilities.
Housing boost: To address the national housing shortage, HUD will offer FHA-insured financing for the purchase, refinance, and revitalization of manufactured homes.
Penny for your thoughts: Dollar Tree is considering selling or spinning off Family Dollar with JPMorgan's help due partly to mixed Q1 earnings.
Move over NYSE: Citadel and BlackRock support the creation of a new national stock exchange in Texas, with TXSE raising $120 million from over two dozen investors.
Hitting pause: Developers are halting projects nationwide as high interest rates and stagnant rents make new apartment constructions financially unfeasible.
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📈 CHART OF THE DAY
Source: Blackstone
After the GFC, real estate values hit bottom long before market sentiment improved. Despite negative headlines for years, values were actually rising.
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