“A
Resilient Economy with an Industrial Market Shedding Excess Space”
Every
key metric typically used to measure the health of the economy is performing
well right now. GDP grew by 2.0% in Q1, and it is estimated to grow by 2.3% in
Q2 by the Atlanta Fed. In terms of employment, over the last year the U.S.
added 3.8 million jobs and now has an unemployment rate of 3.6%. With regard to
inflation, both headline and core inflation are trending downward. The Consumer
Price Index (CPI) rose by 3% year-over-year in June and 0.2% for the month,
below consensus estimates of 3.1% and 0.3%. This was the lowest rate of
inflation since March 2021. And core inflation, which excludes food and energy
prices, rose by 4.8% year-over-year and 0.2% for the month. The annual core
inflation level was the lowest since October 2021, and its monthly gain was the
smallest gain since August 2021.
Most
economists, forecasters, and business leaders are anticipating that the Fed
will continue to raise rates throughout the year until it reaches its target
inflation rate. For this reason, most forecasters still believe a mild and
shallow recession is likely within the next twelve months. However, a
significant minority are anticipating that the US economy will avoid a
recession altogether. For example, in its latest forecast, the National
Association of Realtors has the economy growing slowly every quarter throughout
2023 and projects the economy to grow by 1.1% for the whole year.
Regardless
of one’s stance on this issue, it is indisputable that the industrial market is in
a favorable position to weather most headwinds the economy might face. Total
retail sales grew by 1.6% in May 2023 compared to the same period a year ago ,
and as a percentage of total sales, e-commerce retail sales (one of the key
drivers of the industrial
real estate sector) now stand at 15.1% – 3.9 percentage
points higher than where it stood at its peak prior to the pandemic in Q4 of
2019. With this said, available space continues to increase and there has been
a growing sentiment regarding a shift in negotiating power from Commercial
Landlords to Tenants.