Net Lease News

B+E Weekly Newsletter

May 23 – May 29, 2023

MARKET

TRADERS TURN OPTIMISTIC ON DEBT CEILING DEAL

• Analysts are broadly optimistic that the deal to raise the U.S. debt ceiling will pass a divided Congress after U.S. President Joe Biden and House Speaker Kevin McCarthy reached an agreement over the weekend to raise the debt ceiling to avoid a first-ever government default.
• The compromise also sees the debt ceiling suspended until Jan. 1, 2025, pushing it past the 2024 presidential election. Spending will also be largely held flat for 2024, except for defense and veterans, while 2025 will see a 1% increase in spending.
• Even though the in-principle deal has been reached between the two sides, it will still need congressional approval by both the House of Representatives and the Senate.

INDUSTRIAL

INDICATIONS SHOW INDUSTRIAL RENTS WILL INCREASE 10% THIS YEAR

• The industrial sector experienced a moment of worry several weeks ago amid the mounting economic and financial sector turmoil. That moment appears to have passed.
• If supply drops off sharply in 2024, it may raise the potential for demand to outpace supply and pull the vacancy rate down to the mid-3% range by year-end 2024. Also affecting the longer-term prospects next year is a 40% drop in construction starts due to increased costs and a lack of financing.
• Some markets are also expected to experience more interim vacancies due to an abundance of speculative space under construction. Such possibilities include Dallas, Phoenix, Savannah, and Austin. Besides such markets, vacancy rates may remain below 2019 levels.

HYUNDAI, LG TO BUILD $4.3B EV BATTERY PLANT

• Hyundai Motor Group and LG Energy Solutions have partnered for the construction of a $4.3 billion battery production plant in Bryan County, near Savannah.
• The joint venture will break ground on the project in the second half of 2023 and intends to start battery production by late 2025.
• The facilities are estimated to create more than 8,100 jobs and represent a total investment of $5.5 billion.

RETAIL

CONSUMER SHOPPING PATTERNS FAVOR SINGLE-TENANT ASSETS

• Current consumer spending priorities favor single-tenant assets as Americans continue to dine out, and of course, purchase essential goods.
• For example, in March, restaurant and bar spending was up 13 percent annually, and in Q1, sales in stores — not including restaurants — were up more than 4 percent year-over-year.
• Dollar-store brand options are expanding, too, with the national count of these shops up by 4.4 percent last year. This year, Dollar General plans to significantly grow its pOpshelf concept and Five Below intends to open 200 new stores, including some in urban and semi-rural settings.

RETAIL INDUSTRY REMAINS OPTIMISTIC DESPITE TROUBLED ECONOMY

• Recently vacated space, such as former Bed Bath & Beyond sites, is being leased by a throng of fast-growing chains, like the dollar stores, and digitally native brands that now deem it necessary to have brick-and-mortar locations.
• The number of stores being shuttered has soared compared with 2022. Year to date, major retailers have announced 6.7% more openings and 74.7% more closings compared to the same time last year.
• A number of retail real estate brokers and other experts said they don’t view such closings as a bellwether of any impending disaster for the industry, but rather the age-old winnowing out of weak and troubled companies.

RETAIL’S GROWING DEMAND FOR SIT-DOWN DINING, QUICK SERVICE, AND MEDICAL USERS

• The retail landscape is undergoing a significant transformation with changing consumer preferences and emerging trends, shedding light on the growing demand for sit-down dining, quick-service restaurants, and medical users expanding into urban areas.
• One of the prominent trends observed by Deschaine is the increasing demand for sit-down dining and quick-service restaurants. This shift in preference has created lucrative opportunities for restaurateurs and entrepreneurs in the food service industry.
• Urban areas are witnessing a surge in medical users who are keen to establish a presence in densely populated locations. Recognizing the potential for growth and accessibility, these medical professionals are actively seeking out spaces in urban markets.