Industrial Vacancy to Peak in 2025, Construction Down 50%

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Good morning. Industrial vacancies are rising—but at their slowest pace in years. With a peak projected by mid-2025, could the market finally be turning a corner?

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Market Snapshot

VACANCY VACUUM

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• Real estate roulette: Institutional interest in CRE weakens after a strong decade, with negative returns of -1.4% in 2023 prompting reduced institutional allocations for 2025.

• Optimistic outlook: The Real Estate Roundtable’s Q4 Sentiment Index surged to 73, its highest level since 2021, with CRE execs optimistic about asset stabilization, capital access, and sector-specific growth.

• Inflation fears: Larry Summers warns that inflation risks remain high despite rate cuts, pointing to persistent core inflation and economic growth as signals the Fed may be underestimating things.

• Loan losses: CMBS loan losses decreased in October, with $75.7M across 10 loans resolved, resulting in a total loss of $47.3M.

• Managing debt: Household debt grew 0.8% in Q3 to $17.94T, but rising incomes and declining debt-to-income ratios are helping Americans manage their financial obligations despite increased borrowing.

• It’s about time: NYC is seeking proposals to transform the long-vacant, 80-acre Flushing Airport site in Queens' College Point into a mixed-use development, potentially including new housing options.

• Market divide: JLL CEO Christian Ulbrich reports that high-end commercial buildings are hitting record occupancy levels, while lower-tier properties face rising vacancies amid challenging interest rate conditions.

• Rent rollercoaster: Redfin reports national rent growth stagnation across the multifamily market, with Midwestern cities prospering as Sun Belt cities see declines.

• Trendsetter move: Blackstone (BX) added to its San Diego apartment holdings with a $200M Chula Vista deal, one of the region's biggest in the past year.

• Elite Real Estate: Carlyle Group (CG) partnered with Stonehenge NYC to buy The Henley for $128M, or $853K per unit, solidifying its focus on the Upper East Side.

• Housing hikes ahead: Apartment rents in Southern California are forecasted to go up by $110 to $148 monthly, due in part to a construction slowdown.

• Give me a break, please: Oxbow Development Group is pursuing $1.4M in tax abatements for a $129M apartment project in San Antonio's Pearl District.

• Taking the hit: Acacia Capital purchased a 304-unit property in Redwood City, CA, for $184M, a nearly $29M loss for seller Nuveen.

• Data downtrend: Data center construction planning slowed down in October with a 6.7% decline, signaling a potential plateau amid what seems to be ever-rising demand.

• Makeover success: A JV between Woodmont and Sagard secured a 65-month 104.5 KSF industrial lease with Federation Distribution Services in Monmouth Junction, NJ.

• Railroad revolution: Pending county approval, BNSF Railway's 839-acre Logistics Park in Wittmann, AZ (near Phoenix), may feature a rail terminal and a logistics center.

• Construction conundrum: Industrial vacancy rates stand at 6.6% while retail vacancies are at 4.5%, with minimal new retail construction expected in 2024.

• Rent relief rally: Michael Kors (CPRI) doubled its brick-and-mortar space at 667 Madison Avenue, securing a deal with 49% lower rent, or $438 PSF.

• Mediterranean magic: Cava Group (CAVA) is planning a South Florida and Midwest expansion, with Q3 revenue up 39% to $241.5M and 18.1% same-store sales growth.

• Suburban coworking boom: Nashville firm E|Spaces leased 32 KSF in Atlanta's Cumberland/Galleria area, part of a growing coworking trend in the suburbs.

• Midtown magnate: The Elo Organization is set to acquire a fully occupied, 1920s Class B office building at 21 West 46th Street in Midtown West, betting on the location’s enduring appeal.

• What a deal: UBS Group AG (UBS) signed a 10-year lease for a 33.2 KSF office in Coral Gables, FL, at around just $100 PSF. UBS will be the 84 KSF development’s first tenant.

• Getting it done: Rev Development secured a $26.3M debt package for a 111-room Holiday Inn Express in Silverthorne, CO, opening in 2025.

📈 CHART OF THE DAY