July Commercial Real Estate Newsletter
What's in this issue?
> Demand is up for domestic industrial space: Here’s why > Refinancing? Banks are scaling back on CRE lending > Which amenities do office workers want most?
Demand is up for domestic industrial space: Here’s why Interest in industrial property development is experiencing a resurgence we haven’t seen in recent memory. What’s fueling the demand is the reshoring in manufacturing along with a growth spurt of e-commerce. How much are we growing? The following shows trends in net absorption of industrial space:
5-year average pre-pandemic: 217.8 million square feet
2021: 442.5 million square feet
2022: 412.5 million square feet
2023 forecast: 310 million square feet
2024 forecast: 323 million square feet
Source: NAIOP Research Foundation The pandemic created a surge in demand for e-commerce, driving growth in warehousing space. But now that consumers are returning to their previous buying habits, the main source of industrial growth has shifted to reshoring. Reshoring is a stunning reversal of the decades-long trend of companies shifting manufacturing overseas to capitalize on the lower costs of labor and real estate. From the business side, companies are reshoring to simplify the supply chain and hedge against future disruptions. Here is a snapshot of some of these trends:
More than 75 companies have announced plans to reshore, with electric vehicles and the semiconductor manufacturers leading the pack.
13 new electric vehicle battery plants are expected to be up and running in the next five years.
Transportation firms expect 20% of freight origins from Asia will shift to markets that are geographically closer to home by 2025, according to Deloitte.
Reshoring resulted in 350,000 domestic jobs in 2022, up from 260,000 in 2021
Refinancing? Banks are scaling back on CRE lending If you have mortgage coming due on your commercial real estate property — particularly an office building — you may want to use this time to consider your options. Plans to refinance with your trusted regional bank could hit a snag. Banks and bondholders are scaling back on CRE holdings, according to news reports, because they’re looking to downsize the elevated risks in this sector that have emerged since the pandemic. Elevated interest creates additional risk for these banks to manage. So do the plummeting valuations of office and retail space, which was created in part by the pandemic fueled work-from-home trends and online shopping. With one quarter of mortgages on office buildings coming due, and regional banks holding 70%-80% of the CRE loans, this trend is expected to accelerate in the coming months. As banks step back from CRE loans, what’s filling the gap? So-called shadow-lenders. These alternative sources of capital include real estate investment trusts (REIT) as well as personally funded private credit funds. While they offer a solution for CRE owners, these do come at higher interest rates than banks charge.
Which amenities do office workers want most?
Air purification system
Access to an outdoor patio or roof deck
Reservable meeting rooms
Source: Survey of office workers by design firm SGA
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