Net Lease News

Net Lease News

January 23 – January 30, 2023

MARKET

US INFLATION AND CONSUMER SPENDING COOLED IN DECEMBER

• The Federal Reserve’s preferred inflation gauge eased further in December, and consumer spending fell – the latest evidence that the Fed’s series of interest rate rises are slowing the economy.
• Consumer spending fell 0.2 percent from November to December and was revised lower to show a drop of 0.1 percent from October to November. Last year’s holiday sales were sluggish for many retailers, and the overall spending figures for the final two months of 2022 were the weakest in two years.
• “Core” prices, which exclude volatile food and energy costs, rose 0.3 percent from November to December and 4.4 percent from a year earlier. The year-over-year figure was down from 4.7 percent in November, though still well above the Fed’s 2 percent target.

SMALLER RATE INCREASE BY FEDERAL RESERVE IS LIKELY AS INFLATION COOLS

• Federal Reserve officials are widely expected to raise interest rates by a quarter point at their meeting this week, further slowing what had been an aggressive pace of rate increases in 2022 as they wait to see how swiftly inflation will fade.
• Moving gradually will give Fed officials more time to assess how high rates need to rise and how long they need to stay elevated to fully wrangle inflation, both of which are looming and crucial questions.
• The answers will help to determine how much damage the Fed inflicts on the labor market and broader economy in its quest to control price increases.
• Fed officials predicted in December that they would lift rates to just above 5 percent in 2023, then hold them at a high level throughout the year. But incoming data will drive how high the Fed raises rates and how long it keeps them at that level.

INDUSTRIAL

AMAZON WEB SERVICES TO INVEST $35B IN VIRGINIA DATA CENTERS

• Amazon has made good on its promise to shift capital expenditures from its overextended logistics network to the data infrastructure for its industry-leading cloud computing services: Amazon Web Services (AWS) has announced it is planning to invest $35B by 2040 in multiple new data campuses that will combine its expandable cloud capacity in Virginia.
• Under a new program VEDP is calling the Mega Data Center Incentive Program, Amazon will receive a 15-year extension of Data Center Sales and Use tax exemptions on qualify equipment and enabling software, and an MEI performance grant of $140M for site and infrastructure improvements, workforce development and other project-related costs.
• Amazon’s commitment to invest $35B in the AWS data processing network in Northern Virginia is a huge vote of confidence in NoVa’s ability to continue to expand its data cluster.

GAMESTOP GETS READY TO CLOSE ONE OF ITS US DISTRIBUTION HUBS

• Video game retailer GameStop has decided to close one of its U.S. distribution centers — in a move that will lay off hundreds of workers and put an e-commerce facility up for grabs — as it continues to focus on bringing increased efficiency to its business and boosting its bottom line.
• The Kentucky distribution hub is about 20 miles south of Louisville, the state’s largest city. It is one of a handful of the company’s U.S. e-commerce facilities, with two in its hometown of Grapevine, one in York, Pennsylvania, and one in Reno, Nevada.
• As of GameStop’s last annual report to the Securities and Exchange Commission, the company had a total of 4,573 retail stores, including 3,018 in the United States. In 2020, the company had more than 5,000 stores in 10 countries. The pandemic forced GameStop to rethink its real estate. The retailer’s entire fleet of stores is leased in short-term deals ranging from one- to five-years, allowing it to be nimble where it has a physical presence in changing market conditions.

TESLA ORDERS OUTPACE PRODUCTION AS IT BUILDS PLANTS

• The world’s largest electric vehicle maker posted a record profit for the fourth quarter in a development that bodes well for demand in its industrial real estate projects, but Tesla CEO Elon Musk warned investors of a possible recession and contraction in the automotive market as a whole this year.
• Tesla’s long-awaited Cybertruck, meanwhile, could start production at its plant in Austin, Texas, this year and ramp up in 2024, Musk said on the company’s earnings call this week.
• The company is also planning to invest $3.6 billion into its electric semi-truck manufacturing facilities in Sparks, Nevada, and to expand electric vehicle battery production.
• Tesla is already off to a strong start in 2023 with the electric vehicle manufacturer receiving two orders for every single car it produces.

RETAIL

BED BATH & BEYOND TO CLOSE 142 MORE STORES

• Bed Bath & Beyond Inc. is closing more stores, including all of its Harmon beauty shops, after defaulting on its debt while not yet filing for bankruptcy.
• The company confirmed to Axios on Monday that it is closing another 87 Bed Bath & Beyond stores and five buybuy Baby locations in addition to the 50 Harmon stores and the 120-plus closing stores it previously announced.
• The company is more likely to end in liquidation if it doesn’t find a buyer or have a stalking horse bidder in place.
• Bed Bath & Beyond has been distressed for years, having failed to reinvent itself in the digital age despite efforts to declutter its stores and remake its coupon strategy.

WAWA, 7 ELEVEN EMERGE AS RIVALS TO QSR SECTOR

• As food prices continue to soar, two very specific brands are posting big upticks in foot traffic: convenience stores Wawa and 7-Eleven are emerging as strong alternatives to the quick-service restaurant category, and they’ve got the numbers to prove it.
• Wawa, which has previously announced plans to grow its stable of stores to 1,800 by 2030, has experimented in recent years with drive-through dining formats and has built out its menu to include dinner staples like hamburgers.
• 7-Eleven, the largest C-store chain in the US, is also on a growth path: since 2019, it opened nine “Evolution” locations offering in-store restaurants, premium products like cigars, craft beers, and wine cellars, and in 2021, opened its first dining drive-through.

DISCOUNTER ALDI OPENED THE MOST GROCERY STORES LAST YEAR, BUT NOT THE MOST SPACE

• Discounter Aldi led the industry in the most grocery store openings across the United States last year, but rivals H-E-B and Publix Super Markets bested the German chain in terms of the amount of new space occupied as part of the expansion of that type of property.
• Aldi, a small-format grocer with its U.S. headquarters in Batavia, Illinois, was the leader of new store debuts, with 49 coming online in 2022. Those locations — predominantly in the Southeast and Gulf Coast — totaled nearly 804,000 square feet of new space.
• The square footage crown went to H-E-B. H-E-B, which has been rolling out larger-format “experiential” stores with more than 100,000 square feet added roughly 1.2 million square feet of space in the form of 12 new stores.
• Publix ranked second in terms of the overall footprint of its new stores last year. Its 25 new brick-and-mortar locations totaled 1.175 million square feet.

WALMART PLANS TO EXPAND SAM’S CLUB FOR FIRST TIME IN YEARS WITH 30 LARGER NEW LOCATIONS

• Walmart plans to grow its Sam’s Club portfolio for the first time since 2017 by opening more than 30 new locations and five distribution centers. The big-box retailer plans to open its next Sam’s Club in Florida in 2024 and its next distribution center in Georgia. The retailer plans to continue expanding over the next five years to reach more customers. 
• The club has seen nearly double-digit sales gains over the past year. During the three months ending Oct. 31, it recorded a 10% year-over-year increase and a 24% rise on a two-year basis. The club also saw membership income increase 8%.
• The new stores are planned to be around 160K SF, a 20K SF increase from Sam’s Club’s typical footprint. This extra space will create room for a sushi island, a full-service floral area and a large waiting room for patients at the hearing and optical center.

CHIPOTLE PLANS HIRING SPREE, WILL DOUBLE U.S. STORE COUNT

• Chipotle Mexican Grill is planning to hire 15,000 new employees and double its store count across the U.S. in the next few years.
• “Our restaurant teams are the core of this organization and with a goal of more than doubling our footprint to 7,000 locations in North America, we are targeting employees today to serve as our leaders of tomorrow,” Chipotle Chief Restaurant Officer Scott Boatwright said in a press release.
• The plans for expansion come as retail availability in the U.S. is at an all-time low, dropping to 5% in Q3. A lull in new development, attributed to labor difficulties and the high cost of materials, has led to supply constriction. 

OFFICE

TECH OFFICE LEASING DIVES OFF CLIFF IN Q4, DROPS 57%

• The tech sector, driver of the US economy for much of the past decade, and—along with life sciences—an oasis fueling growth in an otherwise crippled office sector during the pandemic, is now the poster child for the economic downturn.
• As a wave of massive layoffs continues to impact tech companies across the spectrum, tech’s US office footprint—which expanded in leasing velocity as it entered 2022 to more than 8.5M SF—collapsed to barely a quarter of that in Q4.
• It now seems increasingly apparent that a primary reason cited by major tech players in downsizing their office footprints in the first half of 2022—an embrace of remote work—quickly began morphing into an economic necessity as the year progressed.