Net Lease News

B+E Weekly Newsletter

July 16 – July 22, 2024

MARKET

ECONOMISTS SAY CHANCE OF A RECESSION HAS DROPPED SIGNIFICANTLY | Globe St.

• A survey of members by the National Association of Business Economics suggests that the chance of a recession in the next 12 months has dropped significantly. Of the respondents, 7% said 0% to 10%; 40% put the odds at 11% to 25%; and 50% said between 26% and 50%.
• A record percentage of members’ firms raised prices in the second quarter of 2024, 57%, than the previous survey in April. Given the downward trajectory of inflation, it may be a result of increasing cost pressure.
• As the Fed has reiterated, the economy’s future is about more than inflation. The strength of employment is critical given that 69% of GDP is consumer spending. While many of the results in this quarter’s survey suggest improvement, the labor market appears uncertain.

INDUSTRIAL

MEGA LEASES HIGHLIGHT INDUSTRIAL SECTOR IN 1H | Globe St.

• Mega leases in the first half totaled 31 compared with 24 versus the last six months in 2023.  The size of the leases from the top 100 industrial leases that were cited, measured 81.4 million square feet in the first half. That’s up from the 79.1 million figure in the same period last year. Of the 100 companies this year, 41 of them were identified as lease renewals, which was also higher than 2023′s first half of 35.
• The top occupiers on the list belonged to wholesalers and retailers, which swooped up 30 leases in the first half. That’s down slightly from the 34 it had in the same period last year. Third-party logistics wasn’t far behind in the first six months of the year, with 29. E-commerce and food and beverage finished in third and fourth place, with 14 and 13 leases, respectively.
• Overall, the forecast indicates a steady second half of the year for mega distribution centers, before demand gets boosted in 2025. That accounts for economic uncertainty and interest rates dropping.

RETAIL

CASUAL DINING AND QSRS TURN TO PRICE PROMOTIONS | Globe St.

• Dining took heavy blows during the pandemic, and when people felt they could safely go to restaurants, they did. Early this year, Citizens projected that restaurant sales would rise 6% year over year. Just over a third of people visited casual dining restaurants at least once a week. As macroeconomic forces continue to ease, their projection is for another 6% increase in 2024.
• Price promotions in consumer-oriented industries are often the cavalry coming to rescue the day. Casual dining and quick-serve restaurants know this as well as any industry that uses the technique. It seems to have made a difference. Limited-time offers (LTOs) are boosting consumer response. Dropping prices can also be an admission that something is wrong. That may be the case there.

RETAIL VACANCY RATE REACHES 20-YEAR LOW | Globe St.

• The retail vacancy rate of 5.3% in the second quarter of 2024 was the lowest in the last 20 years. A net 1.4 million SF of retail space was absorbed in 2Q2024, recovering from the first quarter’s first negative reading in three years.
• Absorption might be affected by the limited shopping space up for lease as retail construction dived. The 9.8 MSF of retail construction in 2023 set a new low, accounting for only 0.2% of existing inventory compared to the average of 0.6 to 0.9% from 2015-2019. For the first time in years, the retail market is at a point of being supply-constrained – at least for space in quality shopping centers. Currently, there is only 11.3 MSF of retail space under construction, so new supply will remain paltry for the next several years.
• Despite these challenges, the overarching takeaway is that retail real estate remains in a healthy place.