Market Reports

Deal Velocity for Richmond’s Industrial Market Slows for First Time This Cycle

by John Nelson October 16, 2023

With rising interest rates from the Federal Reserve playing out across the capital markets, uncertainty has crept into all corners of commercial real estate, even in red-hot industrial markets like Richmond. For the first time this cycle, deal velocity has slowed for new acquisitions and leasing activity alike in the greater Richmond area. Borrowing costs have skyrocketed in the past 12 months, leading to an extended period of price discovery from both buyers and sellers, thus fewer investment sales. Richmond’s occupancy rate remained steady from first-quarter to second-quarter 2023 at 96 percent, according to research from Porter Realty. Occupancy ticked up 400 basis points for Class A space during that time frame — from 92 to 96 percent — and Class B stayed steady at 98 percent quarter-over-quarter. The second quarter saw more than 280,000 square feet of space returned to the market, though it had negligible impacts on occupancy rates. (Porter Realty tracks industrial facilities in the greater Richmond market sized 40,000 square feet and larger.) The bulk of new leases recently are executed by third-party logistics providers. Recent deals include Riverside Logistics taking 90,000 square feet in Henrico County, Bermuda Distribution & Trucking subleasing 48,000 square feet in …

October 16, 2023

Conference Coverage Development Industrial Market Reports Texas Texas Market Reports

Industrial Lending, Development Patterns Reflect Downsizing in Industrial Sector, Says InterFace Panel

by Taylor Williams October 12, 2023

By Taylor Williams Tenant demand and availability of capital for industrial deals are still healthy in Texas, but end users and developers are demonstrating a clear push for smaller footprints in their leases and projects. This shift reflects a marked departure from recent years, when massive speculative facilities were financed without hesitation or preleasing and industrial users had little choice but to accept staggering levels of rent growth. Spikes in interest rates bear some, but not all, blame for this emerging dynamic. Local and regional banks tend to be go-to debt providers on industrial projects, and these groups take defensive positions with their capital flows during high interest rate environments. And while reliance on e-commerce and third-party distribution remains deeply ingrained in consumer preferences, users still see value in rightsizing their footprints in today’s market. As such, the industrial landscape is changing in Texas, where exceptionally strong population growth nonetheless ensures that the sector remains on very solid footing overall. But changes are undoubtedly happening. Large-scale spec facilities are being swapped for smaller build-to-suits, and manufacturing deals are taking up a larger share of the development pipeline. Lenders are tightening leverage and demanding more upfront equity for projects that they …

October 12, 2023

Market Reports Midwest Midwest Market Reports Nebraska Retail

Retailer Growth, Expansion in Metro Omaha Lead to Optimistic Outlook

by Kristin Harlow October 12, 2023

By Sara Hanke, The Lerner Co. Eternally optimistic is the state most commercial real estate brokers find themselves in, particularly when it comes to the retail sector. We must be, as the conditions of the retail market are quite often painted in negative broad strokes. The predictions that online sales would be the demise of physical retail proved wrong. Retailers that are digitally native continue to open brick-and-mortar locations after realizing the limits of online customer acquisition and growth. Most recently, the pandemic has shown us that retail can weather the storm of restrictions and limitations. Now we are in a post-pandemic world where the restrictions and upheaval of the way we consume has shifted our mindset. Shoppers have returned to their daily shopping, eating and entertainment needs. Navigating the complexities of the retail real estate market continues to keep us all on our toes. The first and third quarters were healthy with vacancy dipping below 5 percent. So far, the third quarter has proven strong due to new-to-market concepts looking to do multiple location rollouts as well as existing retailers looking to add additional locations. As the year progresses, we are not without challenge. There has been a shortage …

October 12, 2023

Kentucky Market Reports Restaurant Retail Southeast Southeast Market Reports

Retailers, Restaurant Groups Zero In On Louisville to Meet City’s Robust Demand

by John Nelson October 11, 2023

As the nation’s 28th-largest city, Louisville is home to a dynamic, diversified economy. The Greater Louisville region draws workers from a 26-county area in Kentucky and southern Indiana, providing an ample and reliable source of educated and skilled employees. The geography of Louisville, specifically its accessibility to the Ohio River, central location nationally and mild climate, have contributed to its ability to grow and evolve. Additionally, reducing the income tax rate in Kentucky is a goal of the current Republican majority State Representatives to further economic development, and the Democratic governor (Gov. Andy Beshear) is also supporting this reduction as a way to help ease the burden of inflation for residents. Legislation passed in 2022 dropped the individual tax rate from 5 percent to 4.5 percent for tax year 2023, and a bill signed earlier this year by Gov. Beshear drops it again for 2024 to 4 percent. The goal is to ultimately get income tax rates down to zero, or very close to zero, in 50-basis-point steps as certain budget metrics are hit. These measures seem to be working for growth in the Commonwealth. One of the more notable capital investment projects is the Ford partnership BlueOval SK Battery …

October 11, 2023

Industrial Market Reports Western Western Market Reports

Investment Strategies Evolve in the West’s Industrial Market

by Jeff Shaw October 10, 2023

— By Nellie Day — Everyone is tired of hearing about the challenging lending climate — no one more so than investors and developers who would like to keep the gravy train moving. “I think the glory days of the last four to five years are now tempered with the increased interest rates,” says Jordan Schnitzer, president of Portland, Ore.-headquartered Schnitzer Properties. “I also believe the hyper growth of big box industrial developments over 500,000 square feet is grinding to a slower halt. A significant amount of that growth has been from Walmart, Amazon and other large retailers that now may have enough space for the next several years before they enter a growth phase again.” So, what’s an industrial player to do when interest rates are high and the industry darlings that have been so active for so long now say their needs have been met? You pivot. “While it’s easier to collect a single check from a 500,000-square-foot tenant, we would rather roll up our sleeves and work harder to get 50 tenants from a 500,000-square-foot building,” Schnitzer continues. New Strategies For A New Era Schnitzer notes that his firm began to see cap rate compression on Western-based industrial …

October 10, 2023

Market Reports Office Southeast Southeast Market Reports Virginia

Richmond’s Office Market Is Stable and Active on the Leasing Front

by John Nelson October 9, 2023

In the second quarter of 2023, the Richmond office market posted more than 670,000 square feet of leasing volume, the highest total volume in more than four years. As transactions commence in future quarters, absorption will be impacted from occupancy shifts later in the year. Despite increased leasing activity, however, the market softened slightly as absorption has started to plateau. The second quarter represented the fourth consecutive quarter of negative net absorption as Richmond’s office market observed occupancy losses dipping to 21,489 square feet. Vacancy rates rose and settled at 12.6 percent, an 8-basis-point increase quarter-over-quarter. Pre-pandemic, overall asking rents saw stable upward rent growth. Since 2020, rental rates have continued to increase though at a leaner rate. Class A rents have flattened over the past 12 months, while Class B rents continued to rise. The Manchester and Scott’s Addition submarkets remain the hot spots for office development. Though there are currently no major office buildings underway at this time, most major office projects under construction in the last five years have either been build-to-suits or conversions. The only notable exception to this was The Current, a 70,000-square-foot spec office building that delivered in Manchester at the end of 2021. …

October 9, 2023

Market Reports Retail Washington Western Western Market Reports

Suburbs Serve as Main Retail Growth Driver in Seattle

by Jeff Shaw October 6, 2023

— Jennifer Seversen, Vice President, CBRE — Suburban retail is emerging as the main driver of retail growth in Seattle. In the height of the pandemic, many consumers stayed close to home, rediscovered their neighborhoods and began shopping primarily in their communities. These habits have continued and, as a result, retailers on once-heavily trafficked commute paths have experienced declining sales revenue. Retailers are taking notes, particularly those in city office districts that rely heavily on daytime foot traffic. The white-hot activity in suburban retail has led to vacancy rates under 2 percent, healthy rent growth and record-breaking absorption within new developments. Rents in suburban markets like Totem Lake, Bothell and Woodinville are outpacing downtown Seattle by 50 percent, something that would not have been conceivable three years ago. Well-located mixed-use retail projects and neighborhood centers have led the way in pushing rent growth, while grocery-anchored developments have been attractive assets to investors. Restaurants have proven to be a major driver of retail activity, with Seattle having a 7 percent increase in diners year over year through the second quarter, the fifth highest increase in the U.S., according to OpenTable. An example of the rise in suburban retail demand is Harvest, …

October 6, 2023

Illinois Industrial Market Reports Midwest Midwest Market Reports

Industrial Cooldown Hits Metro Chicago Market

by Kristin Harlow October 5, 2023

By Mike Mangan, Cresa We knew it would happen, it was just a matter of time: The industrial real estate market is currently experiencing a cooling trend in Chicago and across the country. The best-performing asset across all commercial asset classes for the past several years is finally coming back to earth due to higher borrowing costs and a slowdown in demand. Rental rates are beginning to level off and many economists are predicting a reduction in consumer spending. The industrial sector had been able to flourish despite economic headwinds, with demand during the pandemic heavily focused on e-commerce activity. The supply versus demand is shifting, and this should be welcome news to tenants in the market or who will be in the market in the next 12 to 24 months. Indicators are not pointing toward a crash landing, but a return to earth for the golden child of the commercial real estate asset classes. Tenants and occupiers will be able to utilize the additional supply coming to market to secure better economics and concessions. The facts Let’s first take a look at the national landscape. The U.S. unemployment rate in August was 3.8 percent — higher than predicted by …

October 5, 2023

California Market Reports Western Western Market Reports

San Francisco Rolls with the Punches as the Market Demonstrates Signs of Recovery

by Jeff Shaw October 3, 2023

— By Dina Gouveia and Louis Thibault — The San Francisco market ended the second quarter of 2023 with a 27.2 percent vacancy rate for the office sector, according to Avison Young’s market report. As companies scaled back operations and experienced slower growth, vacancy rates continued to increase. As of late, we are seeing many tenants in a wait-and-see mode when it comes to leasing decisions. This is despite a majority of companies desiring to have employees back in the office. Below are a few key trends and observations when it comes to the office market, as well as some green shoots where we see opportunities for an accelerated recovery. Return to the Office The slow return to office (RTO) largely comes down to overall economic conditions and who has the upper hand in the job market. The trend that we’ve seen in the San Francisco region is that larger tech companies like Apple and Google have led the RTO efforts with CEOs like OpenAI’s Sam Altman opining that remote work is essentially detrimental to collaboration and creativity. It appears there is a widespread appetite to bring employees back into the office full-time. As the job market continues to soften, …

October 3, 2023

Florida Industrial Market Reports Southeast Southeast Market Reports

Increasing Rental Rates, Record Construction Define Orlando’s Industrial Market

by John Nelson October 2, 2023

Orlando’s industrial market continues to maintain strong market fundamentals. Despite leasing activity temporarily softening at the midway point of 2023 compared to the end of second-quarter 2022, exceptionally low vacancy rates persist, putting upward pressure on asking rental rates and further strengthening developer confidence in the market. With its strategic locational advantages and diverse tenant mix, the sector is well-positioned for future growth. According to Florida Commerce, Orlando’s unemployment rate is 2.6 percent, well below the national rate of 3.6 percent. Labor shortages remain, as jobs increased by 5,300 in the industrial-using sector and 6,200 in trade, transportation, and utilities. At the same time, Central Florida’s population growth — along with the state’s business-friendly conditions, from no state income tax to relative affordability — consistently spurs demand for e-commerce logistics and warehousing throughout the region. Asking rates surge Year-to-date industrial leasing volume in Orlando has been 4.4 million square feet, 2.4 million square feet of which was in the second quarter. Total vacancy stood at 3.5 percent in the second quarter, significantly lower than the national vacancy rate of 5.4 percent. The average asking rate for industrial properties in Orlando was $10.77 triple-net per square foot, reflecting a 5.4 percent …

October 2, 2023

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