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A Look at One of the Fastest Growing Industrial Markets

Plus, A commercial real estate crash is unfolding and 6 more Real Estate Insights

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Macro Trends

Baby Boomers about to put a huge burden on the economy link

  • The Baby Boomer generation is nearing "peak burden" on the U.S. economy, with significant implications for housing, the job market, and social security. As they retire, Boomers are expected to strain the economy for the next 20 years, with the "peak burden" potentially hitting around 2029 when the youngest Boomers turn 65.

  • Boomers are exacerbating the housing crisis and labor shortage. They occupy a large share of housing, contributing to high prices and low inventory. This generation also contributes to the labor shortage, with 9.5 million job openings and a workforce still down by 1.7 million workers compared to pre-pandemic levels.

  • The stock market and Social Security are at risk due to the aging Boomer population. With Boomers holding 80% of stock market ownership, their potential sell-off during economic downturns could destabilize markets. Additionally, the Social Security Trust Fund is expected to be depleted by 2033, increasing the financial burden on future generations.

Real Estate Trends

Vertical Farming Industry to Grow 25% Annually Through 2030 link

  • The vertical farming industry is set to expand dramatically, with a projected growth from $4 billion in 2022 to over $27 billion by 2030. This represents a seven-fold increase in less than a decade.

  • Despite typically being no more than two or three stories high, vertical farming facilities are reaching new heights in revenue potential. The U.S. holds nearly 40% of the global market share, with cannabis significantly fueling this growth.

  • The sector's rapid expansion is attributed to advancements in technology and increasing demand for sustainable agricultural practices. Vertical farming offers a promising solution to food production challenges, especially in urban areas.

7 Takeaways from NMHC’s Annual Meeting link

  • Optimism is cautiously returning to the multifamily housing market, with industry leaders expressing a more positive outlook compared to last year, despite acknowledging the challenges ahead.

  • Demand for apartments remains robust, supported by improved consumer confidence, a strong job market, and wages that are increasing faster than rents, though supply still lags behind demand.

  • Maintaining occupancy is a priority, with operators willing to adjust prices to keep units filled amidst a competitive market, especially with a significant number of new completions expected in 2024.

  • Construction starts are plummeting, leading to a forecasted decrease in supply by late 2025, which could enhance revenue prospects as the market adjusts to the reduced pace of new developments.

  • Expense growth is expected to outpace revenue growth in many markets in 2024, but there are signs that the rate of expense increases may begin to moderate, offering a glimmer of hope for improved margins.

  • Property values could be reaching a floor, with capitalization rates stabilizing in the mid-5% range, indicating a potential leveling off in the valuation declines seen in recent periods.

  • Investor sentiment is shifting towards acceptance of limited distress sales in the institutional-grade asset market for 2024, with expectations of more behind-the-scenes resolutions and strategic acquisitions.

Opportunities

A Look at One of the Fastest Growing Industrial Markets link

  • Savannah's industrial market is booming, driven by its status as the second-largest East Coast seaport. The port is a key entry for international trade, affecting local real estate dynamics.

  • Hyundai Motor Group's $5.4 billion electric vehicle plant near the Port of Savannah has sparked a land rush. This investment is transforming the local industrial landscape, attracting suppliers and developers.

Risks

A commercial real estate crash is unfolding, and regional banks are feeling the pain link

  • The commercial real estate sector is in crisis, with a looming $700 billion default. Regional banks, heavily exposed to commercial real estate loans, are facing significant challenges, reminiscent of the SVB collapse.

  • On a single day, the KBW Nasdaq Regional Bank index plummeted by 6%, led by a near 40% drop in New York Bancorp shares due to a $260 million loss from sour loans. This reflects the broader turmoil in the commercial property market, exacerbated by a pandemic-induced demand slump and rising interest rates.

  • Regional banks are particularly vulnerable, with commercial real estate loans comprising 28.7% of their portfolios, compared to 6.5% for larger banks. Efforts to limit exposure include shedding property loan portfolios, highlighting the sector's distress and the banks' precarious position.

Something I found Interesting

There’s No Foreclosure Wave in Sight link

  • Foreclosure headlines may cause alarm, but current data reveals no cause for concern. Foreclosure rates remain below pre-pandemic levels, significantly lower than the 2008 crash.

  • The market today, and its future direction, does not indicate a looming foreclosure crisis. Analysis shows that the fear of a flood of foreclosures is unfounded based on current trends.

  • With foreclosures still not reaching the highs seen during the financial crisis, the housing market appears stable. This stability suggests a healthy real estate environment, contrary to speculative fears.

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