Lee & Associates Commercial Real Estate Services

 

“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.