By Alessandro (Alex) Conte, CCIM, SIOR, The Blau & Berg Company
It was only a matter of time before the federal rate hikes started to take their toll on real estate. Interestingly enough, the sale values of industrial space started to adjust, almost immediately, in the investment sector as institutional investors needed to reflect a high rate of return. What was helpful, however, was the limited amount of available space on the market for tenants. For the better part of 2022 tenants continued to devour space at record pace and prices. Many believe this was still part of the “hangover” following the industrial boom effects of the COVID-19 pandemic.
Fast forward to the first quarter of 2023 where we are now seeing not only new construction coming to market, but the dreaded sub-lease space as well. Port Newark saw total cargo volumes drop from 1,524,298 in February of 2022 to 1,216,607 in February of 2023 reflecting a 20% drop in volume. The slowdown in container activity coupled with the increase of available space leads us to the simple economics law of supply and demand reversal.
If we look at the supply and demand curves, one could say that we reached equilibrium somewhere in the 3rd or 4th quarter of 2022. The question now posed to every analyst and real estate professional, is how far out the supply curve outweighs the demand curve moving forward? The consensus here is that we should, or will, reach the market bottom by the end of the year 2023, and see a slow and gradual uptick in leases in the first half of 2024.
For now, while many investors are on the sidelines, they remain anxious to buy, salivating at the opportunity to purchase quality assets in quality locations at a discount. Few investors, however, continue to prod this market for deals believing this may be the only opportunity they may have to acquire trophy assets at a discount, and position themselves with a strong foundation for the next cycle.
Real estate cycles have a start and a finish. Fortunately, when one cycle ends a new one begins. The game never ends, pricing and demand historically go up as the population continues to grow. There will be many opportunities in the months ahead, and those willing to capitalize on the dip will reap the most profit in the coming cycle.
Alessandro (Alex) Conte, CCIM, SIOR is executive vice president of The Blau & Berg Company.