There’s an existential crisis facing the office market, with phrases like “urban doom loop” and “office-to-residential conversions” becoming commonplace. That environment might seem like an unfavorable one for young adults looking to start a career.
But many early career brokers who spoke with Bisnow said they felt energized by the chance to hone skills during a downturn, despite the increased competition and widely acknowledged financial hardships of starting out in CRE. In conversations with nine young office brokers, many of whom entered CRE since the pandemic, and a few in their older 20s and early 30s with some experience, most saw great opportunity and excitement despite the difficulties.
“You can have the highest high and the lowest lows within 20 minutes of each other,” said Orlando, Florida-based Foundry Commercial office brokerage associate Maria Lombardi, a 24-year-old who graduated college in 2022.
Lombardi was the only one of her 48 classmates in her master’s real estate program at the University of Florida who went into office.
“My classmates asked me, ‘Are you sure you want to do this? Is this the route you want to go?’” she said.
There is also widespread agreement that the financial challenges of launching a career as an office broker haven’t gotten any better.
“I would say it’s more difficult,” William O’Daly, 31, a San Francisco-based associate for Avison Young, said about the challenge of starting right now. “There are less transactions, which makes it much more competitive.”
Despite the challenging office landscape and the befuddlement some contemporaries have over pursuing commercial real estate — one broker said her friends asked if the job was “like Selling Sunset,” the popular Netflix show about pricey LA homes — most of the younger brokers Bisnow spoke to were sanguine, if not energized, by the state of the market.
The downturn didn’t scare off Nate Hruby, 30, a retired Air Force officer who became a tenant rep broker for Stream Realty Partners’ Dallas office in 2021. Regardless of whether he enters during a good or bad run for commercial real estate, it’s a cyclical market, and he still needs to spend three to five years honing his skills.
“I was surprised to learn just how it’s just a matter of grit and persistence,” he said of the role. “That’s the hardest part.”
Like Hruby, many saw this moment as one to build connections and build lasting impressions by helping clients navigate tough times. Time is on their side to build trust and relationships in an uncertain market.
“This is the only market I know,” said Claire Koeppel, 23, an associate who works for Newmark in New York City. “This is the exact time where young brokers should be forging new relationships and opening doors that will then help them once the market picks back up.
“In my generation, we’re on our phones all the time anyway. I’m not complaining about always being on. I actually enjoy it.”
For many, there is a sense that real estate helps tap into their entrepreneurial spirit. Joe Conner, a 32-year-old first-year broker in Colliers’ Seattle office, left a marketing and management career at Starbucks and Nike, where he worked on campaigns for famous shoes like the Air Force 1.
After a friend suggested he try out CRE, Conner was initially turned off by what he thought was a “super salesy” position. But then the risk and reward of commissions hooked him. He has even tried to make up for lost time by taking a crash course in real estate via ChatGPT, asking the AI program to fill him in on industry terminology and financials.
“Your success, it’s up to you,” he said. “I came from a corporate environment where you’d get these reviews that said you did really, really well, but there’s no promotions, no ability for us to pay you more, so just keep doing what you’re doing for multiple years. Here, you get empowered, but it comes with a lot of stress.”
Consensus suggests that, optimism aside, the beginnings for anybody in this industry are rocky. Many young brokers spoke of the grind, taking calls whenever they come in and working 10-hour days, often more than more senior members of their team and doing whatever it takes, no matter how challenging or how small the initial reward. Others said that due to the low deal volume, tenant representation has become especially competitive. Brokers needed to be relentlessly focused on their clients to keep them from being poached.
Isabella Zelinger, 29, who started in 2020 and is now a senior adviser at Cresa, said brokers need to “check their egos at the door” and “work on anything that’s thrown their way.”
“I think a lot of younger brokers look at the successful players who have been at it for 30 years and ask how they get there,” she said. “It’s mostly about having the grit not to leave. It’s a game of ‘can you weather it?’”
Side Gigs Despite ‘Investment Banking Hours’
A big part of the grind is the challenge of making it on a beginning broker salary, especially with the recent escalation in the cost of living. Brokers tend to focus on a combination of agency work, when they represent a building looking for tenants, or on tenant representation, helping someone find space. Most young brokers are adept in both, and skills are fungible. But in a market with fewer deals, it can be that much harder to earn a commission.
“I do have friends who aren’t going to the rooftop bar on a Saturday and coming up with an excuse because they’re trying to hold on to their cash,” Zelinger said. “The reality is that you’ve got to put food on the table. I think we’re going to lose a lot of talent just because of the circumstances.”
Young office brokers typically start off with either a draw — prepaid commissions that need to be paid back if sales numbers aren’t reached — or small salaries, often augmented with commissions. The challenge of making it is longstanding, leading many young workers without connections or support to drop out before they are able to build up enough of a book of business to be self-sustaining. Many repeated the “eat what you kill” cliché about the job. They had enough of a salary to pay for necessities, but it was certainly stressful to make ends meet and served as a strong incentive to close deals and “stay hungry.”
Hannah Hutchins, 29, a broker with Stream in Dallas who previously served as a recruiter for the firm for two years, said it was a real challenge finding talent. Young applicants don’t really know what they are signing up for, she said: long hours and low pay with the potential for six-figure income in a few years, but only if you make it through those first few years. Roughly half of those she hired dropped out within the first two years, she said, and “the highest dropout rate that we’ve seen was in the last three years.”
“It’s frustrating, for sure,” said Micah Gray, 25, a former college football player working in Albuquerque, New Mexico, for NAI Sun Vista. “You do all this work, put in time and energy and effort and really long days just for a very small commission. But it’s part of the learning curve, and we try to put one foot in front of the other.”
When Avison Young’s O’Daly started in CRE in 2016 in Phoenix at the boutique firm Lee & Associates, he spent his first two years with a very small salary — he declined to give specifics — that necessitated side gigs and work at a restaurant. He was still regularly working 10-hour days, including at least one day on weekends, which added up to weeks of 60 hours of work or more, what he called “investment banking hours.”
That difficulty of making ends meet is one reason O’Daly, who didn’t have any links to the industry, said he is seeing more young people in recent years coming into the industry with family or friend connections to real estate.
‘You Can’t Be Successful At 40 Hours A Week’
There are many reasons many young adults don’t end up in office brokerage. Those interested in real estate tend to see analyst roles or busier sectors like industrial as more promising. Part of that can also be blamed on schools and universities not prioritizing real estate as a career option. David Horwitz, vice president of DLC Management Corp., which focuses on retail properties, said after years of recruiting college students, he has found that most real estate programs bifurcate students, pushing them toward either the analytical or sales tracks, pushing some away from brokerages.
Of course, most schools don’t even offer real estate as a major. Koeppel, who graduated from the University of Virginia in spring 2022, said many classmates were steered toward banking and consulting.
“People just didn’t know enough about this industry,” she added.
But there are also simply fewer brokers being hired right now. According to Avison Young principal and U.S. President Harry Klaff, brokerages are putting the brakes on hiring, mostly due to lack of demand. There isn’t a lack of interest in joining the business. Per AY records, the firm hired 41 brokers nationwide under the age of 34 in 2018 and 64 more in 2019. But that has decreased steadily year-over-year amid the pandemic, on par with overall hiring by the firm: 37 in 2020, 33 in 2021 and 21 in 2022. This year, as of the end of August, the firm had hired 20.
The cost for firms to hire young brokers isn’t that substantial, especially compared to more expensive experienced talent. Hiring has simply slowed.
But it hasn’t stopped entirely, in part, Klaff said, because “young brokers tend to be the business development engines for real estate brokerage firms.” They are cold calling, walking buildings and getting out in the market, aspects of the job that always bring value, even in a down market.
Some believe locating leads is one aspect of the job that is actually easier for young brokers now. Utilizing a new crop of CRE databases to find potential leads is very common, and many younger brokers said LinkedIn was one of their favorite tools. The platform’s Sales Navigator tool, which basically functions like Salesforce integrated into a social network, can be very helpful for leads.
That said, it is still a tight job market, and Klaff said the firm needed to be competitive when it came to offering mentorship opportunities, a “people-first” culture and competitive pay. He said compensation packages varied considerably between offices, roles and individuals, spanning from salary to straight draw to various combinations. Klaff said he hoped a starting broker working in the Washington, D.C., market, where he is based, would make $100K annually by the end of their first two years.
Can you be a successful young broker working 40 to 50 hours a week?
“You probably can’t be that successful at 40 hours a week, like you can’t be a successful attorney as a young associate at 40 hours a week,” Klaff said.
“There’s just so much to learn,” he added. “It doesn’t mean you won’t be successful at some point in your career, but let’s say that the pace of your success might be delayed.”
Others said they have noticed firms altering hiring strategies to meet the down market.
Cresa’s Zelinger said part of corporate strategy is being more selective about new hires, looking for those who show signs of being good business developers, as well as those whose parents are local, allowing them to move home and save money. She said that is part of the reason pushes for diversity within the industry have stalled and will take a long time to pay off: If this was a fully salaried business, it would be that much easier to hire and retain workers from more disadvantaged and diverse backgrounds.
‘There’s Not A Book You Can Read That’ll Tell You How To Do This Job’
Despite significant market headwinds and the financial difficulties of making it today, most of the young brokers Bisnow spoke to said they were optimistic about their futures and felt their investment was paying off. Those with five or more years in the business underscored how vital it was to join good teams and find mentorship opportunities within their firms.
“To be successful, you need to be in as many pitches and as many conversations as you possibly can in order to get experience,” Hutchins said. “[Older brokers] need to let them kind of look over their shoulder as you’re signing a lead. What do you look for? What are the gotchas? That’s the only way. There’s not a book that you can read that’ll tell you how to do this job.”
That learning curve is why, for all the promise of making substantial salaries as a somewhat self-directed, entrepreneurial free agent, the role of office broker doesn’t have nearly the cultural recognition or cachet as working for a startup, Hutchins said. Most of the young brokers said this is a role that you have to be wired for, though it is fair to question whether that would be different if it was easier to get a start in the industry.
“Everybody wants to have overnight success, but you have to be prepared to wait on that success,” Hruby said. “And frankly, that’s kind of still where I am. I don’t know that I’ve made it, but you have to just be willing to keep the faith.”
CHICAGO – Carriers optimistic the freight market was starting to show signs of a turnaround should prepare for weak conditions to linger possibly into late 2025, according to economic analysts.
Behind the bleak forecast was weak U.S. economic data shared during the Journal of Commerce Inland Distribution Conference. Saturated retail inventories, rising interest rates, and elevated costs continue to weigh on freight markets’ ability to recover, despite some positive short-term signals behind consumer spending, three panelists said during a Sept. 26 session.
“We’re on a downward path,” said Paul Bingham, director of economics and country risk transportation consulting for S&P Global. “Really, if we’re going to get into any recovery in terms of the overall economy, it’s not going to be until 2026.”
A bright spot in analysts’ prediction, however, is that the U.S. economy will not fall into a recession this year. Instead, growth will be slow: S&P Global forecasts the nation’s GDP will grow by 2.3% this year, and may only top 1.5% in 2024.
Consumer spending compicates bleak forecast
While carriers still face a freight recession, some positive signals are emerging.
The Federal Reserve’s efforts to curb domestic inflation have had some impact on consumer spending, said Bingham, though not enough to tip the country into a full economic recession. Instead, consumers continued to buy goods but not at levels needed to drive down inventory.
The spending patterns have led retail inventories to start normalizing. Meanwhile, the number of trucking firms exiting the market has started to slow as rates and capacity stabilize.
But higher costs for assorted consumer staples including fuel and food, as well as rising interest rates on everything from credit cards to car loans and mortgages will further hinder spending, Bingham said.
If consumers aren’t buying that means manufacturers aren’t producing, which translates to no demand for shipping, said Bingham, noting, “there’s no rebound coming in terms of a reversion to the online spending and so forth on goods that would drive freight demand.”
A more typical peak season?
In the short term, Larry Gross, president and founder of Gross Transportation and Consulting, said the 2023 peak season will be normal when compared to historical trends.
Gross, who specializes in intermodal services, said peak in intermodal historically occurs the last week in September. Recent data shows intermodal volume is about 6.4% above the average non-holiday week, which he noted, “is what a normal peak season looks like.”
Gross’ forecast reinforced pessimistic messages shared by trucking executives who spoke during the Deutsche Bank’s 2023 Transportation Conference in August. J.B. Hunt Transport Services Intermodal President and EVP Darren Field said that customers weren’t predicting a significant peak season, while Werner Enterprises Chairman, President and CEO Derek Leathers anticipated a muted peak season based on an uncertain holiday outlook.
Looking further ahead, Bobby Holland, vice president and director of freight business analytics at U.S. Bank, said he is watching for improvements in new home construction for signs the economy will turn a corner.
Though an economic rebound depends on many things, when new home sales are strong, it lifts other sectors through heightened shipments of building materials to sales of assorted home goods and appliances.
“We know that interest rates are still higher and that housing starts are at their lows,” Holland said. “When you couple that with minimal housing inventories in some areas of the country, we’re watching to see whether this continues to suppress freight.”
The commercial real estate market is headed for a severe collapse due in large part to sky-high interest rates and declining property values, according to a survey of investors.
Around two-thirds of those who responded to a Bloomberg News survey said they believe that the commercial real estate market will recover only after a crash.
When asked when they believe the price of office properties will hit bottom, 44% said they expect that to happen in the second half of next year while 22% said it will be in the first six months of 2024, according to Bloomberg News.
Just 6% of the 919 respondents said that prices would bottom out this year while 29% predicted that it would happen in 2025 or beyond.
The Fed has raised interest rates aggressively, which is increasing the cost of financing commercial properties at a time when there is also reduced need for them, which has hit rent levels.
Investors are bracing for a possible crisis triggered by default on $1.5 trillion in debt that is coming due by the end of 2025.
Some $270 billion in commercial real estate loans held by banks are set to mature in 2023, according to Trepp.
Over the next four years, commercial real estate properties must pay off debt maturities that will peak at $550 billion in 2027, according to analysts at Morgan Stanley.
Earlier this month, a study released by economists from NYU Stern Business School, Columbia Business School and the National Bureau of Economic Research showed that vacancy rates are at 30-year highs in many American cities.
In New York City, the vacancy rate was 22.2% in Q1 of 2023.
Office buildings in New York City — the world’s largest commercial real estate market — have lost $76 billion in value from their most recent sales prices, according to broker JLL.
Blackstone and RXR sold the office building at 1330 Avenue of the Americas for $320 million — a third less than the listing price in 2006.
Real estate firm Cushman & Wakefield recently predicted that there could be 1 billion square feet of unused office space in the US by 2030.
The New York Fed said earlier this year that it was unclear when or if the commercial real estate sector would return to its prior strength.
“While the residential rental market has bounced back, the retail and office markets have remained slack – largely due to the shift to remote work and online shopping,” the bank said in a posting on its website.
Commercial rents in Manhattan are down a lot from where they were before the pandemic, and “this weakening trend may continue as more and more commercial tenants roll off leases that were negotiated when demand for office and retail space was far stronger.”
After a busy July that saw the Port of New York and New Jersey record its largest total cargo volume since October 2022, August brought a normalizing of activity to pre-pandemic levels at the port. The port moved 662,740 TEUs (366,339 containers) in August versus 843,191 TEUs (466,640 containers) in August 2022, a 21.4 percent decrease, which brings its total volumes handled through August to 5,128,563 TEUs (2,847,453 containers). These declines are largely due to U.S. retailers continuing to draw from their overstock of inventory that was delivered during the record cargo surge over the past two years.
Imports decreased by 18.6 percent in August compared to the previous year, totaling 348,921 TEUs (192,889 containers) and 428,721 TEUs (236,681 containers). From January through August 2023, imported loads at the Port of New York and New Jersey reached 2,618,556 TEUs (1,455,034 containers) versus 3,345,305 TEUs (1,851,998 containers) in the same period of 2022, a 21.7 percent decrease.
Exports for August totaled 106,025 TEUs (57,230 containers) compared to 109,058 TEUs (59,120 containers) in August 2022, a 2.8 percent decrease. From January through August, exported loads reached 857,552 TEUs (463,834 containers), a 1.5 percent decrease from the 870,505 TEUs (470,862 containers) recorded in 2022.
Export empties decreased 32.1 percent, totaling 206,064 TEUs in August and 303,662 TEUs in August 2022. Export empties totaled 1,638,833 TEUs from January through August, a decrease of 28.6 percent compared to the 2,294,395 TEUs recorded in the same period in 2022. Import empties rose 8 percent from January through August versus the same period in 2022.
Compared to last year’s August figure, rail volume decreased by 15.4 percent this August, totaling 56,469 containers. Rail volume from January through August 2023 was 13.2 percent less than in the same period in 2022.
A total of 28,443 autos moved through the Port of New York and New Jersey in August, a decrease of 12.3 percent when compared to the previous year. Auto volume from January through August is 13.1 percent less than during the same period in 2022.
Leading up to and following the demise of Yellow Corp., shippers and brokers were quick to redistribute freight to other carriers. However, some of the newly formed shipper-carrier relationships may not be long-lived, according to a survey from investment firm Morgan Stanley.
A Monday report showed that of the more than 300 shippers and 3PLs queried, all of which had recently worked with Yellow, 35% are still looking for another carrier for their less-than-truckload shipments, indicating their first choice post-Yellow is not a permanent fit. Pricing, service and network fit are some of the reasons for another, albeit more modest, shake-up in the LTL landscape.
Yellow historically held a roughly 9% share of the LTL market but that number likely dwindled a couple of hundred basis points ahead of its late-July shutdown.
Most large, growth-oriented carriers run their networks with 15% to 20% excess capacity in efforts to stay ahead of a longer-term demand curve. That means the remaining top-5 carriers had the ability to absorb Yellow’s share. That’s not how Yellow’s freight was redistributed across the industry as many smaller and regional players were winners from the fallout. But the unwinding of Yellow on the downside of the demand cycle with many competitors carrying ample door space explains why the redistribution was accomplished with minimal disruption.
The recent reshape of the LTL pie was apparent in third-quarter updates provided by large public carriers.
All of the public carriers noted some type of inflection in shipments in July and August with Saia recording the largest increases. Shipments for the carrier were up 14% year over year in August. XPO has seen high-single-digit increases and ArcBest called out a 20% jump in volumes at its core accounts, most of which also relied on Yellow.
Morgan Stanley’s report said carriers “appear to be happier with the current status quo than shippers,” which could “lead to a surprise in the magnitude of Phase 2” of the freight reshuffle.
Only 7% of the carriers polled said the Yellow customers onboarded aren’t a good fit for their networks, although 46% acknowledged the pricing and freight mix was worse than that of its base business.
Due to its inability to generate a consistent profit, Yellow lacked the capital to consistently replace equipment, make terminal upgrades and invest in technology. The dynamic dragged down the carrier’s service metrics and often forced it to take freight with unfavorable pricing.
Service provided by new partners is not really an issue for shippers and brokers as 39% said they were very happy with their new carriers, with 60% indicating they were at least somewhat happy. Not surprising, pricing was more of an issue as 22% said they were very happy with their new rates. Sixty-five percent said they were somewhat happy with the new pricing while 13% said “not at all.”
Of the 35% of shippers and brokers saying they are going to find a new carrier, half said they would do it this year, with the bulk of the remainder saying it would be done in the first half of next year. Sixty-nine percent of brokers said a change would be made this year while 60% of shippers said they would wait until the first half of next year.
Eighty-percent of carriers said they have stopped receiving inbound requests from Yellow’s former customers.
“The lack of incoming requests to carriers with 35% of shippers/brokers still planning to move carriers means that there could be significant movement of LTL freight, which may come as a surprise to Carriers who think that their new customers are happy,” the report said.
The series of interest rate increases initiated by the Federal Reserve in early 2022 has helped curtail the record wave of new distribution center development that was underway. Throughout the summer of 2023, industrial tenant demand softened and the pullback in groundbreakings grew more extreme.
Since the beginning of July, only about 45 million square feet of industrial properties started construction in the United States, according to CoStar data. If developers continue at this pace through this month, it will result in the lowest tally for the third quarter of U.S. industrial construction starts that CoStar has recorded since 2013.
However, it will take several months before the recent pullback in groundbreakings translates into fewer options for industrial tenants seeking newly built space. Industrial construction starts reached the highest in more than 30 years in 2022, despite slowing during the final months of that year. Many of the projects that started last year have also since encountered delays due to shortages of a range of building components including structural steel and electrical switchboards.
This all means that the U.S. industrial market still faces a deluge of unleased new distribution space completing construction in late 2023 and early 2024. However, the average time spent under construction for large industrial projects completed so far in 2023 was 14 months. Even if delays mount further and construction timelines rise another 10% to 15%, by late 2024 or early 2025, the amount of new industrial space completed each quarter is set to hit a 10-year low, an after-effect of the pullback in construction starts that is underway.
The relative dearth of new industrial space set to complete construction in late 2024-2025 suggests that if tenant demand for industrial space begins to recover during that period, empty industrial space available for lease could once again decline rapidly.
The recent pullback in industrial construction starts has not played out evenly across U.S. markets. Faster-growing metropolitan areas such as Austin, Phoenix and Las Vegas all have large amounts of open land on their exurban fringes. In these markets, construction starts for unleased industrial properties over the past four quarters have still been running ahead of typical annual net absorption rates, the amount of additional space occupied by tenants, averaged in each of these markets over the past five years.
By contrast, in most other large markets, construction starts of distribution centers over the past four quarters have fallen well short of the five-year historical average for annual net absorption. That list includes such major markets as Houston, Chicago and Columbus, Ohio, where industrial construction levels have historically ranked among the highest in the United States.
Atlanta stands out as having seen one of the most dramatic reductions in construction starts of any major U.S. market in recent quarters. Over the past four quarters, construction starts for unleased industrial properties have totaled just 6.2 million square feet. That figure is more than 70% below the average for construction starts during the previous two years and is also less than half of the annual net absorption Atlanta averaged over the past five years.
This all means that very little new industrial space will likely be wrapping up construction in Atlanta during late 2024. If tenant demand for additional space during that period is anywhere close to the market’s long-term average, the market for distribution space there will tighten significantly.
The bidding war for Yellow Corp.’s highly sought-after truck terminals has ended with Estes Express Lines’ stalking horse offer winning big.
Estes’ $1.525B bid, offered last week, bested Old Dominion Freight Line’s $1.5B offer. The news came in a Thursday order filed by the U.S. Bankruptcy Court for the District of Delaware, FreightWaves reported. The court also approved Estes’ bid protections, including a $7.5M breakup fee and up to $1.6M in expense reimbursement.
“We are pleased to announce that we have been formally approved by the court as the real estate stalking horse bidder,” an Estes representative told FreightWaves. “We continue to believe our transaction is mutually beneficial to both Estes and the Yellow bankruptcy estate. We look forward to continuing in this process and working collaboratively with the parties in the case, and we appreciate everyone’s continued efforts.”
A full sales process will still occur for Yellow’s assets, which means Estes likely won’t walk away with all 174 terminals in the portfolio. The bid deadline is set for Nov. 9, and an auction will take place on Nov. 28.
Earlier this month, Yellow sought court approval to back out of 37 leases across the country, including truck terminals, offices, warehouses and outdoor storage spaces.
The bidding war started after Old Dominion topped Estes’ initial $1.3B bid in late August, revealing intense interest in the rare trading opportunity for the asset class.
In response to Old Dominion’s bid, Estes raised its offer and proposed a lower breakup fee and other terms to help Yellow pay off creditors. Yellow filed for Chapter 11 bankruptcy on Aug. 6 after almost a century in business due to a number of acquisitions and $1.5B in outstanding debt as of March. The debt was due in part to a $700M federal government loan it took out early in the pandemic, CBS reported.
Yellow had enjoyed a roughly 10% market share in the long-distance trucking industry and moved roughly $5B each year, Forbes reported. The next items to be auctioned are the company’s 12,000 tractors and 35,000 trailers.
Companies from e-commerce retailers to third-party logistics providers are leasing less new warehouse space amid weak freight demand, high interest rates and shifting consumer spending.
But the industrial real-estate market hasn’t completely cooled off after three years of frenetic expansion. The amount of storage available remains historically tight, industry experts say.
The industrial market is “starting to slow,” said Matt Dolly, research director of real-estate services firm Transwestern. “I’m not going to say the brakes are on, but the foot might be off the gas and maybe they’re in cruise control.”
Companies rushed to add hundreds of millions of square feet of warehouse space from 2020 through 2022 to meet pandemic-driven e-commerce demand. Those decisions drove the nationwide vacancy rate down to nearly 3% as of late last year, and some markets such as Southern California were effectively full.
The red-hot growth pace of the industrial property sector has contrasted with the commercial real-estate market, which has been pummeled by fading demand for office space.
The pace of industrial leasing has receded and vacancy rates are ticking up, but business remains strong by historical standards, with companies still taking enough new space to keep warehouse rents climbing.
Logistics operators leased about 205 million square feet of warehouse space in the second quarter. That was down from the 235 million square feet leased in the same period a year earlier, but still significantly higher than 135 million square feet in the second quarter of 2019, according to real-estate services firm CBRE.
Hamid Moghadam, chief executive of Prologis, the world’s largest owner of industrial real estate, said there is still demand from companies looking to expand.
“Is it as great as it was in ‘21 and ‘22? No, but you know, in 40 years of doing this, those were by far the two best years” he has seen, Moghadam said. “I would say this year so far has been one of the top five.”
Moghadam said some of the demand is coming from companies that are looking to hold more inventory closer to their customers after grappling with supply-chain disruptions the past few years.
“People realized they’re running too lean on inventories and they’re out of stock whenever something bad happens,” he said. “So people are carrying a little bit more inventory in the system.”
The Logistics Managers’ Index, a monthly survey of supply-chain managers, showed available warehouse capacity grew in August but at a slower rate than in July.
Retailers such as Target, Sam’s Club and Amazon.com have been opening more logistics facilities this year focused on speeding up e-commerce deliveries.
More warehousing space is also becoming available as companies seeking to cash in on federal subsidies for manufacturing electric vehicles, EV batteries and semiconductors build facilities across the U.S.
Broader geopolitical tensions that are driving North American companies toward nearshoring, returning production that had been done in Asia, is also driving warehouse demand. The addition of manufacturing facilities in the U.S. and Mexico is leading those companies and their logistics providers to set up distribution centers to serve the burgeoning market.
C.H. Robinson Worldwide, the largest freight broker in the U.S. by revenue, this month opened a 400,000-square-foot warehouse in Laredo, Texas, to handle the flow of goods between the U.S. and Mexico.
Manufacturers accounted for 8% of all warehouse leasing as of mid-2023, up from 6.7% a year earlier, according to CBRE.
E-commerce has been a major driver of industrial real estate demand, boosted by Amazon’s rapid expansion of logistics capabilities during the pandemic. But Amazon has pared back its warehousing expansion, leaving more room for other logistics operators to build.
“We’re seeing some of the smaller and midsize companies get some opportunities that they were boxed out” of by Amazon, said Transwestern’s Dolly.
Warehouse rents have continued rising as companies have slowed their leasing decisions, a sign that the market remains tight, experts say.
Tight capacity is helping keep the price of industrial real estate relatively high by historical standards. Developers raced to build more industrial real estate starting in 2020 to meet demand. They’ve started cutting back their plans more recently amid rising borrowing costs.
About 110 million square feet of new space began construction in the second quarter, down 55% from a year earlier, according to real-estate analysis firm CoStar Group.
Larger supply-chain trends, including efforts to make distribution networks more resilient, are also bolstering demand.
Importers have shifted more shipments to East Coast and Gulf Coast ports after big containership backups at West Coast ports caused massive cargo delays during the pandemic. The diversions, triggered early in the pandemic by bottlenecks at the West Coast ports and later by the potential for labor disruptions, have eased but the impact is still reaching inland logistics markets.
The shifting import volumes have prompted developers to build logistics real estate to meet growing demand for storage in those markets, experts say.
Sitex Group has acquired a 50-building, 640,000-square-foot industrial park in Saddle Brook, marking the first sale of the campus since its development began nearly a century ago.
The firm, which is based in Englewood, paid an undisclosed price for what’s long been known as Zuckerberg’s Industrial Park at 300 North Midland Ave. It noted that the Zuckerberg family has held the 40-acre property for three generations, adding that the first building went up in the 1930s.
“We are thrilled to acquire the park,” Sitex Principal Blake Chroman said. “Buying an industrial park of this size in prime infill New Jersey — particularly in Bergen County — is incredibly rare. Over the past decade, we built a relationship with the sellers and always hoped that we would own it someday. We are grateful that the Zuckerberg family selected us to be the new owners.”
In a news release, Sitex noted that Zuckerberg’s Industrial Park is home to 50 buildings and a four-acre trailer parking lot. Tenants include large, notable companies such as UPS, SERVEPRO and Johnstone Supply along with many local companies, while the property offers quick access to Interstate 80 and the Garden State Parkway as well as Port Newark-Elizabeth, Newark Liberty International Airport and New York City.
The now-former owners kept occupancy at more than 90 percent for years, Sitex said, but the latter now plans to honor the Zuckerberg family legacy while modernizing the park. Planned improvements include paving, lighting, new signage and updated building interiors.
“We have the right team in place which enabled us to navigate the complexities of this transaction and swiftly close,” Sitex Vice President Jackson Kaplan said.
The firm announced in April that it had closed more than $350 million in transactions in northern New Jersey in the prior 12 months.
“This was a very unique acquisition opportunity and is another example of our longtime strategy of buying and repositioning industrial properties in key infill locations throughout New York and New Jersey,” Chroman said.
Container rates for U.S. imports have normalized. Rates for America’s exports have not. Both spot and contract rates for U.S. exports are still up double digits from pre-COVID levels.
And rates are not the biggest cost issue exporters face, according to Peter Friedmann, executive director of the Agriculture Transportation Coalition.
He told FreightWaves that sailing schedules are now more irregular than before the pandemic, while ocean carrier communications to exporters are as bad as ever.
Consequently, exporters are paying more in detention and demurrage and spending more on storage and trucking due to insufficient communications on erratic sailing schedules than they did prior to 2020.
“Higher rates have not been the primary issue because the rate issue is being overwhelmed by the additional costs imposed on exporters by the carriers’ inability or unwillingness to provide timely and accurate data on things like ERD [earliest return date], when the ship is coming in, and which terminal exporters should send the cargo to,” said Friedmann.
Spot and contract rates still elevated
Import rates collapsed back to pre-pandemic levels following the end of the supply chain crisis (in some lanes, to below those levels). The indexes do not show the same reversion for export rates, at least, not yet.
For the week ending Thursday, the World Container Index (WCI) of U.K.-based Drewry assessed spot rates in the Los Angeles-to-Shanghai lane at $838 per forty-foot equivalent unit. The WCI New York-Rotterdam rate was at $734 per FEU. These rates are well below pandemic peaks, but still up 66% and 27%, respectively, versus rates five years ago.
In contrast, on the import side, WCI’s Shanghai-Los Angeles spot index was down 9% from September 2018, and its Shanghai-New York index was down 16%.
Blue line: Los Angeles-Shanghai. Green line: NY-Rotterdam. Orange line: Shanghai-Los Angeles. Purple line: Shanghai-NY. (Chart: FreightWaves SONAR)
Norway’s Xeneta tracks long-term contract rates, which show the same pattern: down from highs but up versus pre-pandemic.
According to Xeneta data, long-term rates in the West Coast-Far East trade for dry cargo containers averaged $1,171 per FEU as of Sunday, up 39% from mid-September 2019. Long-term rates for 20-foot refrigerated containers were assessed at $3,732, up 32% from four years ago.
In the trans-Atlantic eastbound trade, Xeneta assessed average long-term rates from the U.S. East Coast to North Europe at $909 per FEU (for dry containers, non-reefer) on Sunday, up 13% from mid-September 2019.
‘The biggest challenge right now’
Friedmann explained how carrier service strategy on the import side, combined with a lack of timely data, has translated into higher costs for exporters compared to the pre-pandemic era, above and beyond the rate issue.
“What determines the carriers’ placement of ships and services is the inbound cargo,” he said. “Export volumes and revenues are not their primary concerns when making that determination. And as import volumes have dropped, carriers have adjusted — and they’re still adjusting. The erratic schedules remain an issue and the question is how long it will last.
“The decision to blank [cancel] a sailing is not made three days before the ship is supposed to call at the terminal. Why aren’t carriers providing that information immediately upon making a decision?” he asked.
“When you go to the airport, your phone is blowing up with text messages saying the flight is delayed three minutes or the gate of departure is now E31, not E26. These are flights that are only a few hours long. Exporters ask: Why can’t ocean carriers tell them the date, time and terminal of arrival for a two-week voyage?
“I can’t tell you how many hours our agriculture exporters spend on the phone trying to find out which terminal they should send their exports to. The ocean carrier people will tell them: ‘We don’t know for sure. You’d better call the terminal.’
“I’m not saying people like paying higher freight rates, but you can kind of budget for freight rates. What’s impossible to budget for is when a carrier blanks a sailing or skips a port and doesn’t tell you soon enough — or a terminal is closed — and you’ve got storage costs and production costs and all sorts of additional trucking costs, and detention and demurrage charges that dwarf the freight rates. That’s the biggest challenge right now.”
Exports trending better than imports
U.S. export demand has held up much better than import demand over the past year, so it makes sense that export rates have not fallen as steeply as import rates.
According to Friedmann, “Part of that is because some goods imports are more discretionary to the ultimate consumer. On the export side, there isn’t any discretion. [Some of] the ultimate consumers are animals that need to eat. You’ve got the hogs in China that need our soybeans and the cattle herds in Japan that need our hay and the construction industry that needs our lumber.”
Independent analyst John McCown tracks imports and exports from the top 10 U.S. ports. During the 12 months through July, exports from the top 10 ports increased 1.2% compared to the prior 12 months. Imports were down 16.7%.
McCown also tracks the three-month trailing average of the change in imports and exports. “During most of the pandemic period imports outperformed by a wide margin. However, those trend lines crossed at the end of last summer and export volume growth has outperformed import growth since,” he wrote.
What’s shipped in US export containers?
While the U.S. fronthaul (imports) is largely driven by consumer goods, equipment and components, the backhaul (exports) is largely driven by empty containers, refuse and scrap, and containerized agricultural products.
Data from the main West Coast ports — Los Angeles, Long Beach and Oakland in California and Seattle and Tacoma in Washington — shows that only 39% of containers leaving the ports in January-July were loaded with exports. The rest were empty.
This is up from a low of just 31% in the first seven months of 2022, when the supply chain crisis constricted export capacity by favoring returns of empties to Asia.
The current level is still below the 46% share of laden export containers from these ports in January-July 2019, pre-COVID.
The U.S. Census Bureau compiles data on containerized exports by Harmonized System code, measured in kilograms. The top 10 categories accounted for 70% of the total in January 2019 through this July.
The top category, with an 19% share, was wood pulp and paper, including scrap and waste. There was more refuse in the second-place category: plastics including waste and scrap, at 12%. An agricultural category came in third — oil seeds, grain, fruit and nuts — with 10%.
In fourth place, more garbage: food industry refuse and waste, at 6%. Wood was in fifth, at 5%. This was followed by iron and steel, including more refuse — scrap metal (5%); mineral oils and mineral wax (4%); then another agricultural product, meat (4%); followed by cotton and yarn (3%) and salt, cement and plaster (2%).
