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Industrial Leasing Stalls as Tenants Shift Strategies

Industrial lease conversions are struggling, with only 30% of potential deals resulting in signed agreements, as tenants rethink logistics and economic uncertainty persists.

Industrial Leasing Stalls as Tenants Shift Strategies

Industrial lease conversions are struggling, with only 30% of potential deals resulting in signed agreements, as tenants rethink logistics and economic uncertainty persists.

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Good morning. Good morning! Industrial leasing is hitting a snag—only 30% of deals are closing as tenants rethink logistics strategies amid economic uncertainty.

Today’s issue is brought to you by InvestNext—streamline your entire syndication process and raise capital faster.

👉 Your perspective matters! Take 4 minutes to share your thoughts on the CRE market's pulse in the Q4 2024 Fear and Greed CRE Survey.

Market Snapshot

S&P 500
GSPC
5,893.62
Pct Chg:
+0.32%
FTSE NAREIT
FNER
810.93
Pct Chg:
+0.63%
10Y Treasury
TNX
4.369%
Pct Chg:
-0.047
SOFR
30-DAY AVERAGE
4.844
Pct Chg:
0.0%

*Data as of 11/18/2024 market close.

INDUSTRIAL TRENDS

Why 7 Out of 10 Industrial Lease Searches Are Falling Short

Industrial leasing activity is slowing, with only 30% of potential deals converting to signed leases, according to JLL.

Longer timelines: The average industrial lease search in 2024 takes nine months, up from four months in 2020, reports Bisnow. Factors include more decision-makers involved in approvals, high debt costs, and the growing complexity of supply chain logistics.

Zoom in: Third-party logistics providers (3PLs) now dominate the market, leasing more space than any other sector for five consecutive years. As companies prioritize flexibility, many are outsourcing logistics operations rather than committing to long-term leases. By 2025, 3PLs are projected to account for 21% of all industrial leasing activity.

Looking back: Pandemic-era dynamics, where tenants scrambled for space under a "just-in-case" inventory model, have shifted. Tenants are now consolidating space and negotiating harder for concessions as market conditions normalize. Vacancy rates, at 7.3% nationally, reflect this softened demand.

Rents and construction trends: Industrial rents averaged $9.57 per SF nationally in Q3 2024, with new supply—260M SF delivered in the last year and 357M SF under construction—expected to apply further pressure.

➥ THE TAKEAWAY

Looking ahead: Economic uncertainty and high borrowing costs are prompting tenants to delay decisions, especially in tighter markets like Miami and Atlanta. Leasing volumes are anticipated to rebound gradually, but activity will likely remain below pre-pandemic levels in the near term.

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*Please see the advertising disclosure at the bottom of this newsletter.

✍️ Editor’s Picks

  • Office comeback: Floyd Mayweather Jr. has invested in 601W Companies’ $10B office portfolio, comprising 18 buildings and 10 million square feet.

  • Value collapse: Brookfield's (BN) Bank of America Plaza in Los Angeles has seen a staggering 69% drop in appraised value over a decade, highlighting ongoing challenges in urban office markets.

  • Distressed Assets Fund: Last chance to receive 100% depreciation on your invested capital for 2024. Schedule a call with Reap Capital to learn how you can take advantage of this opportunity. (sponsored)

  • Whodunit? Speculation swirls as Delaware-based LLCs acquire nearly half the units in Miami's Solaris condo, with many suspecting Ken Griffin is behind the purchases to expand Citadel's HQ.

  • BID in the Loop: Downtown Chicago property owners consider taxing themselves to combat high vacancies and improve urban conditions, joining a trend seen in major U.S. cities.

  • Capital buffer: Amid rising delinquency rates in CRE loans, US banks have bolstered credit reserves to brace for further losses, with regulators affirming the system’s overall stability.

  • Missed opportunity: MCB Real Estate withdrew a $1.45B offer to take Whitestone REIT (WSR) private due to a board disagreement on the $15 per share bid.

  • Getting ready: US homebuilder confidence hit a 7-month high in November (post-election), driven by regulatory relief and strategic incentives to offset high prices and mortgage rates.

🏘️ MULTIFAMILY

  • Financing the future: Kennedy Wilson financed the first phase of the 595-unit Artwalk Towers project in Jersey City, part of a 1.2K-unit project.

  • Sunbelt resurgence: The good ole Sunbelt saw improving apartment demand after many months of a supply mismatch, with Texas, Florida, and North Carolina retaining their status as key markets.

  • Brooklyn's new gem: Canvas Property Group acquired The Azure tower in Downtown Brooklyn for $112.8M, with plans to revamp the building into retail spaces.

  • Public potential: A Boston Foundation report suggests developing 5% of publicly owned land in the region could create 85K new homes, but legal hurdles and community resistance remain.

🏭 Industrial

  • Christmas spirit: Samaritan's Purse leased a 172 KSF warehouse in Acworth, GA, from Prologis (PLD) for Operation Christmas Child, one of eight such warehouses.

  • Deal of the day: Longpoint Partners acquired a $331M, 26-building industrial portfolio from Blackstone in South Florida, solidifying its 4.7 MSF regional footprint.

  • Warehouse wonderland: Realterm and Titan Development are set to construct a 440.3 KSF industrial project in Laredo, TX, featuring 36-ft clear heights and 150 dock doors.

🏬 RETAIL

  • Breaking down: Advance Auto Parts (AAP), a nearly 100-year-old retailer with 5K stores, will close over 700 locations after facing ongoing financial struggles.

  • Sweet, sweet luxury: Louis Vuitton's new NY flagship features an impressive atrium with signature trunks and a Le Chocolat shop, just for fun.

  • Break out the champagne: The Connell Co. broke ground on a 60 KSF retail center in Berkeley Heights, NJ, part of The Park's $500M redevelopment, projected for completion by 2026.

  • Retail blooms: Fidelis Realty Partners purchased 33 acres for a new shopping center in Castle Hills' The Trails development in New Caney, TX, near Houston.

🏢 OFFICE

  • Skyscraper saga: Hines secured city approval for a 13-story, 435 KSF office project in LA's Arts District despite union opposition, but filling the space could prove challenging.

  • Energy mergers: Exxon Mobil (XOM) will cut 397 jobs in Texas after acquiring Pioneer Natural Resources, more than doubling the energy company’s land holdings.

🏨 HOSPITALITY

  • Extended-stay evolution: Choice Hotels (CHH) celebrated opening its 500th extended-stay property, with 350 more in the pipeline across four brands.

A MESSAGE FROM RE-LEASED

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*Please see the advertising disclosure at the bottom of this newsletter.

📈 CHART OF THE DAY

Construction expenses are expected to go up 5–7% in 2025 (varying by materials) due to demand shocks, policy changes, and potential supply chain delays. 

Private nonresidential construction costs and public construction costs are set to hit their highest level yet, while private residential construction costs will remain below the peak seen in 2021 and 2022.

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