The logistics industry is having a bit of a Charlie Brown moment. After years of working to kick the football through the uprights and score big in developing fast, cost-efficient last-mile strategies, the pandemic is proving to be another game-changer. Logistics firms have benefited from a surge in e-commerce that is feeding demand for more space. At the same time, supply chains need to adapt to a huge shake-up in where people are living and working that has further complicated last-mile delivery. Amid this disruption, logistics companies are trying to solve the same fundamental issues: How do they get products in the hands of consumer or business customers more quickly? And how do they improve cost efficiencies in last-mile delivery? “We have had a number of things converging at once. It wasn’t just the pandemic, but the pandemic has shined a spotlight on several issues that were evolving,” says John Dohm, SIOR, CCIM, a partner at Infinity Commercial Real Estate in Miami Lakes, Fla. The logistics industry is dealing with advances in technology that include automation, robotics, and autonomous vehicles, as well as sensors and radio-frequency identification (RFID) codes that not only track shipping containers but track every individual item within those containers. Simultaneously, the logistics industry had to account for new and changing omnichannel delivery models, including click-and-collect and curbside pickup, not to mention the need to account for the return of goods. Click to read more at www.ccim.com.
Industrial is far and away the hottest sector in commercial real estate right now and the hottest industrial markets are scattered throughout Texas, each one creating a unique draw for investors and developers.
The largest city in the Lone Star State also boasts the most absorption of industrial space so far in 2020: just more than 6.4 million square feet. According to CBRE research, nearly 3.9 million of that got leased up just in Q2. In that same period, though, about 8 million square feet came on the market, which boosted vacancy rates to 6.9 percent. About 18 million square feet of new industrial is under construction in the Houston market with the southwest (8.5M SF) and northwest (4.8M SF) sectors bringing in the most space. “Houston is very competitive,” said Alfredo Gutierrez, president of industrial-focused investment firm SparrowHawk Real Estate Strategists. “Because of the setback in oil prices, some investors are perceiving a pullback in real estate by some of the energy companies. That provides a window of opportunity to invest in industrial real estate in Houston.” He predicts this window will close in late 2021 as the energy sector rebounds, e-commerce increases and the benefits of trade with Mexico expand in Houston.
When it comes to new construction, it’s hard to beat the numbers coming out of the Dallas-Fort Worth area. CBRE reports that in Q2, more than 23 million square feet was underway. Thing is, that space is getting eaten up as soon as it hits the market. For example, DFW had about 3.4 million square feet in completions and 2 million square feet of net absorption this spring, marking 39 consecutive quarters of positive net absorption. “I think Dallas is the strongest market in the United States right now,” Gutierrez said. “Dallas is just screaming hot.” Two of the three largest leases signed in Q3 are distribution-focused companies. FedEx scooped up about 750,000 square feet of available space, opening a new distribution center in South Dallas, while packaging and fulfillment firm AmeriPac expanded to a new 400,000 square-foot facility near DFW Airport.
Experts agree El Paso is the market to watch as near-shoring adds production to Mexico and manufacturers are looking for convenient locations to store their goods before they’re shipped across the U.S. That’s why vacancy rates are some of the lowest in the country. Right now, only 2.9 percent of industrial space (a record low) is available in El Paso, boosting the asking rate to a record high: $5.38 PSF. To answer demand, CBRE reports 3.4 million square feet of space is currently under construction, including a new three-story industrial build-to-suit project. Another project is a 370,000-square-foot warehouse/distribution complex from Hunt Southwest Real Estate Development Co. Hunt Southwest president, Preston Herold, told the El Paso Times the company picked the border town because of its low vacancy rates, calling them “market fundamentals you want to see as an investor and developer (in real estate).”
While they’re not making the headlines of the other Texas markets, Austin and San Antonio are holding their own in the industrial sector. CBRE reports that strong tenant demand for distribution space contributed to Austin’s 25th consecutive quarter of net absorption. Vacancy in the capital city is down to 9.7 percent as Q3 saw no new projects delivered. The opposite is the case in San Antonio, where more than 800,000 new square feet came to market in Q3. As a result, vacancy bumped up to 14.2 percent. And more projects are on the way. Per CBRE, a whopping 1.8 million square feet are under construction.
The pandemic has hit commercial properties hard – especially restaurants, retailers and hotels, which are having a hard time making mortgage payments because of reduced business. As a result, the industry is facing a “wave of foreclosures” over the next several quarters, according to securities data company Trepp, which warned that “borrowers may be strategically defaulting on their loans.” Borrowers with loans coming due in 2021 or before have stopped making payments at a rate six times greater than those whose loans are due later, according to Trepp (a 1.66 percent delinquency rate compared to 0.27 percent, respectively). That suggests such borrowers, believing they will not be able to find financing to keep their buildings when their current loan expires, are cutting their losses by defaulting sooner, rather than later. Stopping payments can also put pressure on a lender to negotiate with the borrower, said Matt Anderson, managing director at Trepp. While data suggest owners of smaller properties are more directly impacted by the recession — loans with balances of less than $1 million have a delinquency rate twice that of the overall portfolio — larger property owners appear to be most aggressively cutting their losses. The term of a commercial real estate loan generally comes due before it is fully paid off. When the loan expires, or becomes mature, borrowers generally take out a new loan to pay off the first – a practice that allows both sides the flexibility to reset the terms to better reflect market conditions and the borrower’s financial state. Click to read more at www.lmtonline.com.
COLLEGE STATION (Real Estate Center) – Second quarter numbers released today by the Real Estate Center at Texas A&M University show a Texas land market hit hard by plummeting oil prices and the pandemic. Research Economist Dr. Charles Gilliland issued the state’s land report card:
Price: + 1.7%
Sales volume: – 8.7%
Average acreage sold: – 9.1%
Total acres sold: – 23.5%
Total dollar volume: – 22.2%
“The average $2,929-per-acre sales price inched up 1.7 percent, well short of the 6.5 percent increase in the first quarter and falling short of that quarter’s $2,986-per-acre price,” Gilliland said. “Closed land sales dropped 8.7 percent, more than double the decline posted in the first quarter.” Typical transaction size fell 9.1 percent to 1,217 acres. Gilliland said this points to an increase in the sales of smaller properties. The drop in activity resulted in a 23.5 percent decline in the number of acres sold compared with a first-quarter dip of 4.3 percent. That decline caused the total dollar volume to fall 22.2 percent to $1.1 billion, down from a first-quarter increase of 6.1 percent. “Overall, Texas land market results are encouraging considering the negative forces impacting the state and world economies,” said Gilliland, who has tracked Texas land markets for decades. “Regional results varied.” Panhandle-South Plains’ prices retreated, and Far West Texas had a profound drop in activity along with lower prices. West Texas and Northeast Texas markets had increasing prices but contracting numbers of transactions and total acres sold. Click to read more at www.recenter.tamu.edu.
OVID-19 drastically affected the financial landscape worldwide. The effects have rippled through every industry, including commercial real estate (CRE). Long-struggling malls and retail stores have taken an especially devastating blow. Between social distancing and consumers cutting discretionary spending, malls simply can’t catch a break. Without loan restructuring and innovative solutions to keep retail stores afloat, malls could become a thing of the past. To predict the future of malls and commercial real estate, it’s important to examine how we got here. Ecommerce: The Original Retail CRE Challenge: In February, the COVID-19 pandemic was mere weeks away from taking hold in the U.S. At the time, retail management company Vend boiled the Ecommerce vs. retail race down to purchase type. “Consumers are making more convenience purchases online,” Francesca Nicasio wrote, “but they’re still making their luxury and experiential purchases in person.” Indeed, retail CRE investors had been closely tracking the growing popularity of Ecommerce. Online sales were predicted to grow from $1.3 trillion in 2014 to $4.5 trillion in 2021, and that was before the pandemic. In response, some CRE investors moved away from retail. Hedge funds found CRE bundles with a high proportion of mall loans and bet against them. Then came the pandemic. Click to read more at www.pioneerrealtycapital.com.
By Christopher H. Volk | Spring 2020
As much as commercial real estate is a game of numbers, data, and analysis, the human component plays a huge role in what deals are made and how they get done. Examine your decision-making process — can you comfortably say you’re free of unknown cognitive biases? Probably not. In that case, what biases — psychological, emotional, and/or cultural, for instance — influence your choice to go this way instead of that? To begin this discussion, let’s take a simple hypothetical: You have an opportunity to invest in either a store operated by an Ashley Furniture licensee or a nearby Home Depot. If all significant variables are eliminated, which do you choose? When I ask graduate business students, they generally opt for the Home Depot. Those who don’t are reluctant, still preferring the Home Depot but assuming some subterfuge on my part. After all, Home Depot has exceptional brand awareness, a high investment-grade A credit rating, and is the nation’s largest home improvement chain, with approximately 2,200 locations. In contrast, Ashley Furniture has about 800 locations, most of which are operated by individual licensees. Simply put, Home Depot as a tenant seems to make the real estate more desirable. Click to read more at www.ccim.com.