The industrial sector faced a challenging year in 2023, marked by sluggish growth attributed to various obstacles such as elevated interest rates, inflationary pressure and reduced sales and leasing volumes, according to the fourth quarter 2023 JLL industrial outlook.

According to data released by JLL, net absorption in the U.S. industrial sector remained largely unchanged in the fourth quarter from the previous quarter, standing at 44.1 million square feet by the end of 2023. This brought the year-to-date net absorption figure to 214.8 million square feet.

Markets traditionally known for robust absorption figures, such as Atlanta and New Jersey, experienced reduced or negative absorption in the fourth quarter, according to JLL. Factors contributing to this downturn included deferred occupancy plans in new deliveries and occupiers opting for more cost-effective markets.

While the historical quarterly net absorption high of 141.7 million square feet recorded in the fourth quarter of 2021 remains unmatched, analysts emphasize that the current absorption levels indicate only a slight decline compared to pre-COVID levels, which averaged around 59 million square feet quarterly.

Over the past five years, just more than 2 billion square feet of new industrial space has been delivered in the country, with 593.5 million square feet added during the pandemic, contributing to a 3.8% increase in total industrial inventory in 2023.

With the influx of new deliveries, vacancy rates saw an uptick of 230 basis points from the previous year, settling at 5.7% by the end of 2023. Similarly, new industrial construction starts continued to decline in he fourth quarter of last year, with only 407.6 million square feet currently under construction. Factors such as the cost of capital, inflated land prices and fluctuating material costs have contributed to this slowdown in construction activity.

Despite the challenges, leasing volume experienced a 14.8% increase from the previous quarter, reaching 105.7 million square feet. Rental rate growth, however, saw only a modest 1.6% increase quarter-over-quarter, although the year-over-year increase measured 12.3%, elevated from pre-pandemic averages. Occupiers remained cautious in finalizing new lease agreements, prolonging the decision-making process.

Looking ahead to 2024, JLL analysts anticipate a positive outlook with an expected increase in activity driven by pent-up demand from occupiers who delayed new deals over the past year. New deliveries surged 14.8% year-over-year, reaching a new high of 171.8 million square feet. The top five markets for deliveries in 2023 were Dallas/Fort Worth, Houston, Eastern & Central Pennsylvania, Savannah and Chicago, collectively delivering 187.6 million square feet.

Despite the challenges, there were some bright spots in the industrial landscape. The preleasing rate on new deliveries rebounded slightly with a 3.4% quarter-over-quarter increase to 33.8%. Manufacturing projects, in particular, saw a significant uptick, now accounting for 10.5% of the total square footage under development.

The Savannah, Phoenix, and Austin markets emerged as hubs for large-scale EV and chip manufacturing endeavors, with manufacturing sites recording a 74.8% increase in square footage under development compared to the previous year.

Looking forward, JLL analysts predict that new construction starts will be driven not only by the nearshoring trend affecting manufacturers and their supply chains but also by the need to replace aging industrial buildings with more efficient ones. Locations capable of providing heavy power and water are expected to be in high demand as manufacturing activity continues to progress.

Mention rates in a room of commercial real estate professionals and their first thought likely goes to interest rates. As crucial as the actions of the Fed are to development, there’s another rate property owners need to keep tabs on: insurance rates.

“Insurance companies had to raise their rates due to losses over the past few years,” explained Ryan Nolen, an independent agency owner with Goosehead Insurance in Richmond, Texas, citing Hurricanes Ian and Ida in recent years.

Navigating the complex landscape of commercial property insurance has become increasingly challenging in the face of those rising risks and costs. According to Joe Minden, Producer at Swain & Baldwin Insurance in the Dallas area, the trends observed in 2023 reflected a consistent theme in risk management.

“Rates had increased. Markets had hardened on their coverages. Capacity had shrunk in certain areas, particularly coastal exposures,” noted Minden.

The challenges faced by CRE owners were notable, particularly in managing higher insurance costs that impacted their bottom line more than anticipated in their financing models. These elevated insurance costs posed a challenge to their net operating income and became a factor complicating the feasibility of penciling profitable deals in 2023. It’s a scenario in which a competent and trusted insurance partner is critical.

“I was extra proactive during this time, reaching out to my clients and going over their coverage and ensuring I’m doing my job,” Nolen shared.

This proactive approach underscores the importance of constant communication and reassessment to adapt to the evolving landscape of commercial property insurance.

“It is important to work with owners well ahead of time to prepare precise data for underwriters to assess and price habitational risks as accurately as possible,” he explained.

Additionally, having strategic conversations with owners about structuring insurance coverages and deductibles plays a crucial role in aligning with their risk tolerance while meeting loan compliance requirements.

Nolen also offered a crucial piece of advice, emphasizing the importance of comprehensive coverage tailored to specific needs: “Just because it’s cheaper doesn’t mean it’s better. Ensure you’re fully covered!”

As businesses look ahead to 2024, Minden advised a cautious approach.

“News sources seem to be pointing towards a moderate year for insurance in 2024. It is advisable to still be conservative on budgeting given how volatile the markets have been over the recent years,” he suggested, highlighting the need for continued vigilance and strategic planning.

In light of these challenges, Minden highlighted the proactive role that Swain & Baldwin Insurance has played.

“Our agency has helped owners place their risk with unique programs that we operate tailored for their asset type,” he shares.

Furthermore, Swain & Baldwin Insurance has implemented captive strategy programs for owners with sufficient size, offering a financially feasible solution that provides owners with more control in their risk management.

Nolen also extended his commitment to assisting businesses with their insurance needs.

“I’d love to help them out. At Goosehead Insurance – The Ryan Nolen Agency, I can shop more than 70 companies in the State of Texas to help protect your personal or commercial risk,” he offered.

As businesses grapple with the uncertainties of the commercial property insurance market, insights from Minden and Nolen highlight the significance of proactive engagement, strategic planning and a nuanced understanding of economic trends to make informed decisions in an ever-changing environment.

The NRP Group in partnership with The City of Killeen Public Facility Corporation, J.P. Morgan, and Texas Capital Bank, last week celebrated the grand-opening of Station42, a 368-unit mixed-income multifamily project in Killeen, Texas.

Station42 showcases NRP’s dedication to offering quality housing for Central Texas residents at all income levels, with a focus on the “missing middle” who face challenges affording market-rate rents amid the region’s rapid population growth. To meet this demand, more than half of the property’s units are reserved for residents earning less than 80 percent of the area median income (AMI).

Located near the corner of W.S. Young Drive and East Veterans Memorial Boulevard, adjacent to Conder Park, Station42 boasts a robust onsite amenities package. Residents will have access to a 24-hour fitness center, club room, gaming area, kitchen and dining space, and a coworking lounge space complete with two tech-enabled conference rooms.

The development’s outdoor amenities include a dog park and entertainment area with dining space, a resort-style pool and a grilling deck. A package concierge and private, detached parking garages with EV charging stations are also available. The property is in proximity to Killeen’s historic downtown.

In-unit finishes include keyless fob entry, in-suite washers and dryers, LED backlit mirrors, built-in USB ports, and, in select units, balconies are available. Kitchens feature stainless steel appliances, maple white quartz countertops, white brick kitchen backsplashes, undermount sinks and under-cabinet kitchen lighting.

Killeen has a population of nearly 160,000, making it the 19th-most populous city in Texas and the largest of the three principal cities of Bell County. Due to the city’s proximity to Fort Cavazos, Killeen’s local economy is interconnected with the activities of the post, and the soldiers and their families stationed there. 

J.P. Morgan partnered with The NRP Group to provide equity investment in the project, while construction financing was provided by Texas Property Bank.

OHT Partners LLC has broken ground on its second upscale apartment community in one of Houston’s busiest submarkets.

Lenox Timbergrove, the 293-unit, five-story complex is rising at 2825 W. 11^th Street. The site is in the heart of a burgeoning area just west of the Houston Heights and north of the Washington Avenue corridor in the Lazybrook/Timbergove area. 

The 5-story, Class-A complex will feature studio, one, and two-bedroom units ranging in size from 500 to 1,150 square feet. Each home features: modern designs, stainless steel appliances, quartz countertops, smart-home technology and more. Community amenities include: a resort-style pool, outdoor pavilion with gas grills and kitchen, indoor pet spa, 24-hour co-working space, artificial turf game lawn, and more.

This is the second recent luxury apartment community start in the Greater Heights / Washington Avenue submarket of Houston for OHT Partners. This past May, the firm broke ground on Lenox Heights, a 359-unit community less than three miles away at 333 W. 24th Street.

The project is slated to open its doors near the end of 2025, and rental ranges will be determined closer to the project’s opening date.

Partners Real Estate has secured a five-building property management assignment totaling 522,790 square feet across Dallas, San Antonio and Houston.

The Etchepare Family recently closed on the following properties and has tapped Partners’ Property Management team in the Dallas office to manage its entire portfolio:

780 Shiloh, Plano 114,655-sq.-ft
5556 Tennyson, Plano 98,110-sq.-ft
9702 Ball Street, San Antonio 31,800-sq.-ft.
1714 14th Street, Plano 143,771-sq.-ft.
Mesa East, Houston 134,454-sq.-ft

A new survey suggests that commercial lenders expect a busier year in 2024, thanks largely to a more stable interest-rate environment.

The survey conducted by Nashville-based Built Technologies, a provider of construction and real estate finance technology, shows that lenders in the United States are largely optimistic about the financial viability of real estate investment in 2024.

The company’s first State of Lending Survey gathered responses from 117 national, regional and global lending institutions.

According to Dan Gendler, director of analytics at Built, lenders expressed confidence that Federal Reserve Board rate cuts will boost lending activity in the commercial real estate market. They expressed concerns, though, over government regulations and project completion timelines.

Lenders responding to the survey also said that they expect alternative lending sources to fill the gaps left by traditional institutions unable to bear certain risks, either due to regulatory constraints or balance sheet considerations.