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A surge of new industrial real estate supply entered the market in 2023, helping ease a crunch in warehouse space. However, a dwindling construction pipeline amid higher costs and cooling demand should keep rental rates around their current level, said Stephanie Rodriguez, Colliers’ national director of industrial services.

“Construction starts have dropped off significantly,” Rodriguez said in an interview. “That allows the markets to sort of catch up and absorb that space that’s been delivered at the end of 2023 and in the beginning of 2024. There’s really not much coming in behind it.”

Logistics real estate titan Prologis also expects rent rates to continue climbing as the supply pipeline dwindles. CFO Tim Arndt said on a January earnings call that the company is projecting “modestly positive rent growth aligned with inflation over the next 12 months.”

Still, the pace of industrial rent growth slowed in the second half of 2023, and several markets eager for more inventory saw an increase in available space as construction projects completed, Colliers reported. The greater Los Angeles area saw its vacancy rate rise to 3.4%, up 256 basis points year over year, while the New York City metro area’s vacancy rate jumped 183 basis points to 4.7%.

“The amount of product that hit the market and that stabilization in demand only leads to an increased vacancy rate,” Rodriguez said.

 

Forget labs or data centers. The true mission critical infrastructure of American life is the 3.7 billion square feet of big, boxy refrigerated warehouses that have recently become a real estate asset of interest.

Significant changes in grocery shopping, restaurant operation, pharmaceutical storage (including new diet drugs), online ordering and meal kits, agriculture, food manufacturing and even grocery logistics all demand increasing refrigerated storage space and food prep areas, which has supercharged demand for cold storage. Colliers (CIGI) predicts annual growth of 13.2 percent through 2030, and real estate stalwart Related Companies last fall launched a $1 billion affiliate business, RealCold, to develop new freezer space across the country.

Cold-storage warehouses aren’t just full-size Frigidaires. Incredible technological sophistication underlies these spaces, including heated flooring — to avoid cracked surfaces from extreme cold — and multiple temperature zones for discerning tenants and different products. After all, Americans’ increased consumption of specialty coffee creamers and premium ice cream, which have high fat content, requires much lower temps than other frozen items.

“These facilities are way more complicated than biotech labs,” said Jonathan Epstein, managing partner of BGO (formerly BentallGreenOak), a global real estate investment firm that’s become a cold-storage developer and operator since launching a dedicated fund in 2021. Since big food operators are focused on cutting emissions, and the food chain produces nearly a third of the world’s carbon, some of BGO’s warehouses have sensors that can track all the carbon emissions from departing and arriving trucks. “I look at this really as food infrastructure, and less about cold storage.”

American diets have become more diverse in recent years, incorporating more fresh and healthy options, requiring more chilled and refrigerated space for organic food as well as food processing areas for packaged herbs and produce. Diet shifts and the demand for proteins and whole foods have shaped dining and grocery behavior. Much of the clamor for cold storage comes from frozen food, which has seen a huge spike in popularity since COVID. The category racked up $72 billion in sales in 2022, a third more than in 2019.

It’s a global phenomenon. Even countries like China, with a traditional everyday-visit-to-the-market culture, have seen freezer purchases spike in recent years.

“You can see it in the frozen section at the store. The number of frozen aisles has expanded,” said Rick Kingery, a senior vice president at Colliers.

This, in part, is why even the juggernaut of Ozempic and other new drugs for weight loss aren’t seen as a huge impediment to the sector’s strength. While nearly 25 million Americans by 2035 are expected to be taking these drugs, which can cut calorie intake by 30 percent, analysts believe the impact on snacking and fast-food consumption won’t significantly alter the frozen market.

There’s lots of money in these once-in-a-generation blockbuster drugs, with Goldman Sachs predicting the market could be $100 billion within the decade. But an analysis from Green Street found that if drugs like Ozempic achieved 27 million users, overall food consumption in the U.S. would decline by just 2 percent. They don’t change near- or long-term fundamental forecasts for the sector. If anything, the demand for storage of such drugs might increase demand for cold storage that much more, since Ozempic needs to be kept just above freezing before first use.

“​​If you’re on one of those medications, you’re still eating,” said Kingery. “And so you may be snacking less. But most of your snacks aren’t in the cold aisle.”

Siting, financing and filling a cold-storage warehouse represents a significantly more difficult challenge compared to dry, ambient industrial space. Just a handful of builders have experience in the field — maybe a half-dozen out of the hundreds of contractors who regularly do tilt-wall industrial spaces. That limits the pace of new construction and retrofits, and explains why the average cold-storage space is 43 years old.

That doesn’t even begin to reckon with the financing challenges of space that can cost more than $350 a square foot. Specialized spaces for ultra-cold food and medicine can run four times the cost of standard industrial products. These aren’t commodity spaces, either: Different uses and users require radically different layouts and designs.

Finding tenants for new buildings can also present a challenging courtship for operators, since these sites are so central to their operations. Typical cold-storage leases run 15 years, twice the length of typical industrial leases, and tenants tend to require much more on-site monitoring. And, since food production, distribution and waste account for so much carbon, tenants also have high expectations about sustainability, meaning lower carbon footprints and a better energy efficiency. Many big owners don’t build new facilities until they’re pre-leased.

The risk has scared off many potential investors. Kingery said that during the big pandemic run-up in standard industrial construction from 2020 to 2022, many cold-storage warehouses under development pivoted to traditional warehouses mid-construction. Why not take the cash at the top of the market and run instead of going ahead with a riskier asset?

“Tenants don’t show up in cold storage until the buildings are done,” said Kingery. “It’s scary to be inside a building that costs $300 or more a square foot, walls are up, roof is on, and you have no activity. ‘What have I done?’ ”

The sector has experienced the same winter of financing challenges and uncertainty as other parts of commercial real estate. Americold, one of the largest operators, had less-than-stellar earnings reports this fall and cut annual development funding from $200 million to $100 million.

But over the long term, demand isn’t slowing, and supply is unlikely to catch up due to those food and pharmaceutical trends. BGO’s Epstein estimates the nation was already short 40 percent in terms of cold-storage capacity due to changing demographics and migration patterns, and 90 percent of the existing stock needs to be replaced. With roughly 350 million square feet of space in operation now, Epstein estimates a $150 billion potential market for new development. A March 2023 report from Newmark (NMRK) found 9.8 million square feet was in the pipeline, a record, but not enough to overcome persistent undersupply.

“It seems like the industry’s always been that way, there’s just more use than there is space available,” said David Greek, managing partner at Greek Real Estate Partners, which operates and develops these spaces. “I think one of the reasons it’s stayed that way is that it’s just a very hard business to run. It’s much more expensive to run a third-party logistics company out of a freezer-type use than a dry use. There’s just more moving pieces. Operating and fixed costs are higher.”

That’s one reason that the sector has consolidated so dramatically. A drive toward professionalism and private equity investment has meant fewer mom-and-pop operators and more giants like Americold and Lineage Logistics, which combined run roughly 70 percent of existing freezer space. That, however, is creating opportunity. Newmark analysts suggest that this domination by a handful of big companies is presenting new opportunities for smaller, regional operators.

Cold storage has room to grow in different kinds of places as well as specific markets. Grocery stores and larger restaurant chains continue to experiment with centralizing production and distribution at cold-storage-adjacent hub kitchens, meaning smaller footprints for individual restaurants and a change in a common form of commercial leasing. That can mean savings , and shifts in restaurant leasing, if companies go from a 5,000-square-foot space with a walk-in refrigerator and freezer, and a dozen workers on shift, to a 1,700-square-foot distributed location that needs just four workers at a time.

Kroger, which has been using the Ocado robotic system for automating warehouses and distribution, found that a single cold-storage-enabled fulfillment can handle the same volume as a dozen grocery stores. When grocery retailers figure out how to improve the cost efficiency of such a system, Kingery predicts a bigger swing toward e-commerce.

In addition, new markets with growing populations demand more cold food storage. These include Sun Belt cities like Houston and Dallas. States such as Ohio, Kentucky and Indiana also have persistent need for spaces due to the prevalence of agriculture and food manufacturing. Cold storage at ports continues to be in high demand, including long-standing centers of food distribution like Philadelphia and emerging spots like Jacksonville, Fla.

The recent raft of supply chain disruptions has ramped up demand at different ports, as food firms have sought more diverse ports of call to account for disruptions. A joint venture between Americold and Canadian Pacific Kansas City seeks to develop cold-storage facilities that would consolidate cross-border trade and send U.S. meat to Mexico and then produce back north. It’s another sign of the increased importance this kind of infrastructure has on significant swaths of economic activity.

“It is the definition of mission critical,” Kingery said, “because, if you go down and you melt, the product is spoiled.”

 

After years of rapid growth, the industrial market became imbalanced last year, with new development far outpacing occupancy gains.

A record 607M SF of new industrial projects delivered across the country last year, while the U.S. saw 231M SF of positive net absorption, according to Colliers’ Q4 2023 Industrial report. Nationwide vacancy rose by 194 basis points to 5.5%, the highest rate since 2016.

“New supply nearly tripled demand, as measured by net absorption during 2023, pushing vacancy higher in every region of the country and across nearly all industrial markets,” the report says.

The five largest industrial markets all saw spikes in vacancy: Greater Los Angeles’ vacancy rate rose 256 basis points to 3.4%, Chicago’s rose 75 basis points to 5.3%, Dallas-Forth Worth’s rose 335 basis points to 8.5%, New York City’s rose 183 basis points to 4.7% and Atlanta’s rose 290 basis points to 6.6%.

Though Dallas-Fort Worth saw some of the biggest vacancy rate increases, it also had the most positive net absorption with 28M SF and the most product under construction in Q4 with 40M SF.

The fastest-growing markets in the country included Savannah, which saw 17% supply growth last year, followed by Charleston at 14.7% and Austin at 13%.

However, slowing construction starts should help bring supply and demand back into balance, Colliers’ report said: 80M SF of new projects started during the second half of 2023, down 76% from the same period in 2022.

 

Demand for industrial space in Northern Jersey sunk into unfamiliar territory last year as net absorption, or the change in occupied space, posted the first negative annual tally since 2012. Totaling a negative 355,000 square feet, net absorption for the region was a far cry from nearly 3.2 million square feet of positive net absorption recorded in 2022.

Moderating demand for logistics space came against a backdrop of the most active year on record for project completions. All told, the Northern New Jersey market digested 3.9 million square feet of new space in 2023, primarily in Linden, Somerset and Landing.

Also weighing on the lackluster demand picture is a mismatch between the type of industrial space occupiers want and the size of new projects developers are building. With tenants recalibrating the amount of warehouse and distribution space required for optimized operations, they are increasingly seeking out smaller facilities. The average size of new industrial leases in 2023 was 18,300 square feet, down 24% from the prior year’s 24,100 square feet.

Meanwhile, market participants have noted that the sweet spot for industrial tenants today is roughly 50,000 to 150,000 square feet. That’s precisely the size cohort that’s seeing a shortage of available space. Moreover, developers in the region are in the process of delivering four projects totaling over 250,000 square feet.

The largest of these will be a 585,000-square-foot facility in Mount Olive at the Matrix Logistics Park. The two-building distribution center sits off I-80 and is expected to be completed this summer.

Of the four biggest developments, three are still without a signed tenant. They will add 1.2 million square feet to Northern New Jersey’s inventory at a time when there is already 5.8 million square feet of available space at industrial properties sized 250,000 square feet and larger.

Although the metropolitan area is entering the home stretch of its pandemic-induced supply binge, macroeconomic and labor challenges are expected to persist in the near term.

The latest forecast models expect net absorption to eke out a gain of 135,000 square feet this year, an assumption that hinges on the economy maintaining cruising altitude in the face of still-elevated interest rates and steady progress on a new labor contract for East Coast dockworkers.

Should either of these variables fall short of expectations, industrial property owners may instead be looking at a second straight year of negative absorption.

 

Many U.S. industrial properties began 2023 in a well-leased position and remained that way throughout the year. Even property owners with leases that were expiring were, in most cases, able to renew those leases, often at rents that were more than 40% higher than rents that prevailed just five years earlier.

But 2023 was a challenging year for newly built and vacant big-box distribution properties that needed to secure their first tenants. Higher interest rates weighed on the economy and tenant demand for additional industrial space waned significantly as the year progressed. Coinciding with a giant distribution center development wave underway, this drop-off in tenant expansions has fallen hardest on the 350 million square feet of industrial projects that finished construction in 2023 and remain unleased.

As the supply of new industrial space outpaces tenant demand, the U.S. industrial property vacancy rate has been rising for more than 12 months. At 5.6%, the national vacancy rate is still at a relatively low level that favors most building owners, having risen from the all-time low hit during the pandemic.

However, industrial vacancy is now rising at a faster pace. Two key questions for the industrial market heading into 2024 are when the amount of vacant space is expected to peak and how much further vacancy will increase along the way.

Given the large tally of speculative industrial projects still under development, it is all but certain that vacant newly delivered space will continue piling up during the first six months of the new year.

A total of 416 million square feet of unleased industrial space is currently under construction across the U.S., which amounts to about 1.3% of the stock of existing properties nationwide. Under the baseline assumption that the tenant base maintains its current size and all this space under development is completed without any signed leases, the U.S. industrial vacancy rate would rise to 6.9%. That vacancy level was last recorded in 2014 and is significantly higher than the 5.3% vacancy rate averaged during the five years before the pandemic.

But just as there is a high probability that the U.S. industrial vacancy rate will rise significantly during the first half of 2024, there are also signals that supply pressure from new development completions will subside significantly in late 2024, setting the stage for vacancy to stabilize.

More than 80% of the unleased space under construction is comprised of projects that broke ground before August 2023. That is when the Secured Overnight Financing Rate, or SOFR, a short-term bank borrowing rate used as a benchmark for setting interest rates on construction loans, reached its 2023 peak of 5.3%, where it has remained since.

Rising interest rates had already been reducing the number of industrial projects breaking ground during early 2023, but after SOFR surpassed 5%, industrial construction starts plummeted to 10-year lows in the second half of the year.

The fact that more than 80% of unleased industrial projects under construction today have already been under construction for more than five months is critical to the market outlook. For context, the average development time for large U.S. industrial projects from groundbreaking to completion is 14 months. This suggests that more than three quarters of projects currently under construction will deliver within the next nine months, most of them in the first half of 2024, leaving very few projects on track to complete construction by the fourth quarter, an after effect to the 10-year low in construction starts that prevailed during the second half of 2023.

This looming drop-off in new additions to industrial supply means that even a modest increase in tenant demand by the end of 2024 would be enough to cause the U.S. industrial vacancy to stabilize or begin tightening again. If the economy falls into recession between now and then, any reduction in vacancy would likely be delayed.

However, with retail inventories running lean again, and the decline in imports that prevailed during most of 2023 beginning to level off, early signs that tenants may soon be looking to rebuild inventory levels and expand their distribution center networks are already emerging.

 

While a famed Italian fashion house might have closed 2023 by splashing down more than $800M on Fifth Avenue real estate, foreign investors captured a historically small portion of the U.S. commercial property market last year.

With property prices still in flux and geopolitical instability spreading across the globe, these big-pocketed players aren’t expected back in the market in force soon.

Investors based outside the U.S. accounted for just 3.4% of U.S. property acquisitions in the 12 months ending in September 2023, according to MSCI Real Assets data provided to Bisnow, the lowest share since December 2008.

After spending more than $15B on U.S. CRE in the first quarter of 2023, foreign investors spent $10.1B on U.S. CRE in the six months ending in September, the least over two quarters since the second and third quarters of 2020, according to MSCI data.

“There is some caution and fear out there. Even though the U.S. is more stable than other parts of the world sometimes, when you’re looking for safety, you stay closer to home,” MSCI Real Assets Executive Director Jim Costello said.

Cross-border investment was down 56% in 2023 through the third quarter, according to JLL, compared to a 50% decrease in overall U.S. CRE investment. International investors have pulled back from the U.S. commercial real estate market for the same reasons all investment has retreated.

Increased interest rates and the pullback of lenders have made even funds that typically buy with cash more cautious to transact, despite falling values that might seem appealing.

“Multiple interest rate hikes, rising inflation and recession fears discouraged foreign investors to actually pull the trigger,” said Cecilia Xu, global capital placement director at Cushman & Wakefield. “I don’t believe it’s a long-term trend, as foreign investors still view the United States as one of the safest countries in the world to put their money. There was still a lot of deal interest, underwriting and negotiations last year. But honestly, the uncertain economic environment made it hard to actually close the deals.”

Foreign investors have pulled back for a variety of reasons, not the least of which is to shore up their own portfolio allocations and values from the aftershocks of rising interest rates, CBRE Vice Chairman Will Yowell said.

“[Foreign investors] are very focused on taking care of legacy issues and legacy portfolios,” Yowell said. “So there’s a lot of internal, ‘Hey, let’s address some of the issues we have with our internal portfolio.’”

According to preliminary full-year MSCI data, the most active sources of cross-border investment in 2023 were Singapore, Canada and Japan, with Singapore investors pumping more than $10B into the U.S. property market, making up more than 34% of all international U.S. CRE investments in 2023.

In late December, an entity connected to the Prada family purchased its flagship Manhattan store at 724 Fifth Ave. for $425M and 720 Fifth Ave. next door for $410M, Bloomberg reported. The purchases made Italy the seventh-largest source of cross-border U.S. investment in 2023 after placing 24th in 2022.

Japanese investors put $3.7B into U.S. commercial real estate as of early December, their largest volume of capital into the U.S. since 2016, The Wall Street Journal reported, citing MSCI data.

Tokyo-based Mori Trust Group led the charge, purchasing a $700M stake in 245 Park Ave. in Manhattan from majority owner SL Green. It also paid Boston Properties more than $500M in September 2022 for a trophy D.C. office building.

Japanese investors are moving first back into the market, Costello said, in part because the return to offices has been so strong in Japan. Xu attributed the influx of Japanese investors to the relative strength of the yen.

Their purchases also signal what types of properties other global investors will be interested in purchasing when they return to the market.

“If I’m going to hop on a plane and look at assets, I want to be able to write a $50M check,” Costello said.

Trophy buildings, even office buildings amid concerns over the future of work, are the best places to do that.

“There’s already a bit of demand for that, but there’s not willing sellers,” Yowell said. “When those institutions come back, and I think they will, that’s where the capital will be focused. They will be focused on the core trophy assets.”

In August, Orlando, Florida-based Estein USA purchased the Three Ravinia Drive office tower in suburban Atlanta from Blackstone for $175M, using capital raised from its German investors, Yowell told Bisnow.

Much of the activity to this point has been from those types of high net worth investors rather than the institutional wealth funds, Yowell said.

“We’re seeing that private capital step up,” he said.

Half of global real estate investment firm chief financial officers surveyed by Deloitte said they expect the cost of capital and capital availability to worsen throughout the year. They said their chief concerns are the continued war in Ukraine, extreme weather events and weaker-than-expected economic recovery in China.

“It doesn’t matter if it was New York, Tokyo or London,” Costello said. “Nobody wants to overpay for an asset.”

Adam Omar Al-Shanti, who invests on behalf of investors based in the Middle East into commercial properties in the U.S., Saudi Arabia and the United Arab Emirates, said his investors are more focused on keeping their money close to home.

Al-Shanti plans to close on $100M of high-end hotels and rental properties in Dubai and Saudi Arabia rather than shopping in the U.S. Yields on commercial real estate investments there are stronger than in the U.S., fueled by government spending, by high global oil prices and by an influx of young Russians and Ukrainians to the region, Al-Shanti said.

He said his investors expect U.S. prices to keep dropping, especially in the office buildings that they prefer to buy. There is more than $115B of U.S. office debt expected to mature this year, which could force some owners into sales.

“I would expect that institutional investors are probably interested if there’s something they can scoop up at highly attractive prices,” Al-Shanti said. “Their perspective is that things haven’t bottomed out yet.”

Xu said investors active in the market today are “mostly like bottom fishers” attempting to buy properties at discounted prices.

Yowell also said some foreign investors are scouting the U.S. property markets for distressed deals, especially coming from countries where yield is more difficult to generate.

“The Japanese might be more on the front end [of the cycle] this time around,” he said.

Despite the pockets of interest, Costello said he expects foreign institutional investors to be out of the market for some time out of fear of making poor investment decisions.

“The cost of being wrong is that you don’t get a chance to raise the next fund because everybody remembers how you called it wrong on the market timing,” he said. “The institutional and cross-border capital might be down for a bit. By the time they’re back, the market is already back.”

 

The rise in vacancy rates in the industrial sector amid slowing demand and the wave of new supply, which will come to market over the next year, is the key macro trend for 2024, according to a new report from Cushman & Wakefield.

“The industrial market has seen its fundamentals shift over the past year as we have registered record new supply, moderating absorption totals, and climbing vacancy rates across many markets,” Jason Price, Senior Director, Americas Head of Logistics & Industrial Research, Global Research, US, Cushman & Wakefield, said in a company forecast video.

The trend stands out to Price mostly because the continued upward trajectory of vacancy rates should have occupiers finding a slightly easier market to navigate for the short term, coming off those record lows achieved in 2022, he said.

Despite this vacancy rate increase, the overall rate is expected to remain below the long-term 15-year historical average, Price said.

This will keep the industrial market on healthy ground, however, “the projected increase is something which won’t last too long as we expect vacancy rates to start to recompress in 2025,” according to Price, and “the climbing vacancy rates will also lead to more modest and sustainable rent growth in 2024 and beyond.”

Given the hot streak in 2020 and 2021, thinking long-term, context matters, according to Cushman & Wakefield.

From 1995 to 2019, the U.S. industrial vacancy rate averaged 8%. That recent industrial boom brought vacancy down to 2.8% in Q2 2022, which is more than twice as tight as the market had ever been.

Ever since, vacancy has moved higher, rising to 4.7% as of Q3 2023.

Cushman’s baseline has vacancy peaking in early 2025 at 6.2%, which would still be roughly 200 bps lower than the historical average.

 

US banks active in lending against warehouse and industrial real estate properties ramped up their exposure to the property sector significantly year over year as of Sept. 30.

Investors’ generally bullish view on industrial real estate in recent years, driven by the rise of e-commerce, has lost some steam in recent months amid worries about consumer spending and the potential for a recession.

In an Oct. 16 note, BMO Capital Markets real estate investment trust analysts said industrial property owners’ “enviable position of strength” at the beginning of 2023 has weakened as a result of economic uncertainty, while third-quarter net absorption in the sector — a measure of tenant demand relative to supply — was the weakest since the first quarter of 2011.

However, industrial lending remains a relative safe haven for banks paring back their exposure to office properties, a core commercial real estate (CRE) sector that has faced stronger headwinds amid persistent work-from-home trends.

Top lenders
Wells Fargo & Co., which has the largest disclosed warehouse and industrial loan book among US banks, raised its exposure by 25.4% year over year as of Sept. 30, according to S&P Global Market Intelligence data. Bank of America Corp., the second-leading lender in the sector, raised its exposure by 12.8% year over year.

Industrial and warehouse loans make up a relatively small percentage of gross loans at Wells Fargo and Bank of America: 2.6% and 1.4%, respectively. Several banks with a greater concentration in the sector also increased their exposure, including Heritage Financial Corp., where loans in the sector rose 9.7% year over year to account for 13.3% of gross loans. At First Busey Corp., industrial and warehouse loans rose by 11.1% year over year to account for 9.1% of total loans as of Sept. 30.

CVB Financial Corp., where industrial and warehouse loans were 25.7% of gross loans at Sept. 30, reported a 3.3% year-over-year increase in exposure to the sector.

At Commerce Bancshares Inc., loans in the sector increased 87.5% year over year, while at Pinnacle Financial Partners Inc., they rose by 53.5%.

Pinnacle Financial CFO Harold Carpenter said in an Oct. 18 earnings conference call that the quarter’s results reflect a “slightly more conservative appetite” for industrial and multifamily loans compared to the past few quarters.

Other lenders with sharp year-over-year increases included Prosperity Bancshares Inc., with a 35.7% gain, and BOK Financial Corp., with a 29.8% ramp-up in exposure.

Mixed outlook
Observers of industrial real estate see mixed signals moving forward. In an Oct. 20 note, Morgan Stanley analysts observed rising concerns of slowing demand and rent growth in the sector. Prologis Inc., the largest publicly traded company in the sector, predicts that new supply will outpace demand over the next three quarters before that trend reverses in the following three quarters, they wrote.

Wedbush analysts argued in an Oct. 22 note that the pace of new construction starts in the sector may be slowing — a positive sign for existing property owners — while there is ample room for rent growth beyond current levels. Despite some observers’ concerns that the long-term rationale for warehouse sector growth is slowing, Wedbush sees positive forces driving online grocery shopping and recent retail sales data has been strong, they added.

In an Oct. 25 earnings conference call, BOK Financial executives predicted a tempered approach to CRE lending, noting that their exposure to the sector is at the upper end of their target range.

“We expect that we still have room for modest growth in that next year, but it’s not going to be at the double-digit rate that we’ve seen year over year in CRE so far,” Mark Maun, the company’s executive vice president for regional banking, said. “We are focused on multifamily and industrial. That’s where the growth has been. We don’t see those markets slowing down too much. We’re not focused on retail and certainly not on the office piece.”

Hope Bancorp Inc., where industrial and warehouse loans totaled 8.8% of gross loans at Sept. 30, bucked the general trend with a 1.3% year-over-year decline in loans to the sector.

 

American consumers just keep on spending — and the volume of containerized imports keeps on rising. October import numbers released Tuesday by Descartes came in exceptionally strong.

The U.S. imported 2,307,918 twenty-foot equivalent units of containerized goods last month, according to Descartes Systems Group (NASDAQ: DSGX), which obtains its data from customs filings. That’s up 3.9% year on year and 4.7% compared to September.

Imports have surged 33% from their recent low in February. October’s inbound volumes were the highest since August 2022, back when volumes were still inflated by the one-off pandemic boom.

It was the third best October ever for the U.S. imports, with the exception of the boom-inflated months in 2020 and 2021.

China continued to be the top driver of inbound volumes. According to Descartes, America imported 886,842 TEUs of containerized goods from China in October, 38.4% of total imports and the highest volume from China since August 2022.

Volume up vs. pre-COVID years
This year’s imports continue to outpace volumes in the years prior to the pandemic.

Descartes put October’s imports 11.5% above imports in October 2019, 2.5% higher than in October 2018 and 15% higher than in October 2017. (In 2018, importers brought in shipments early to avert the Trump administration tariffs, hiking fall 2018 volumes at the expense of fall 2019 volumes.)

Total imports in January through October of this year were up 3.4% versus the same period in 2019, 4.4% versus 2018 and 11.8% versus 2017.

Trans-Pacific rates strengthen
Meanwhile, trans-Pacific spot rates have strengthened recently and remain within the normal pre-COVID range.

The Drewry World Container Index (WCI) assessment for spot rates from Shanghai to Los Angeles was $2,175 per forty-foot equivalent unit in the week ending Thursday, up 11% versus the prior week.

Current rates in this lane are 20% below the WCI assessment in 2018, when rates were inflated by the tariff effect, and 38% above 2019 levels, when rates were depressed because imports had been pulled forward by tariffs. The Shanghai-Los Angeles index is currently 33% above 2017 levels.

The WCI Shanghai-New York spot index was at $2,616 per FEU in the week ending Thursday, up 3% from the week before.

It was flat versus 2019 levels, down 24% from tariff-boosted 2018 levels and up 9% from the same time in 2017.

 

For most companies in general, and in CRE in particular, making cutting edge use of artificial intelligence is still a distance off.

But Blackstone seems deep in, according to an interview that John Stecher, chief technology officer, gave to PE Hub. From what he said, and what he didn’t, there’s a lot to learn.

For example, he noted that what the company is using goes far beyond generative AI like ChatGPT. With the current hype, it’s easy to forget that the early days of artificial intelligence go back to the 1950s. There are many variations of the technology, including older approaches like rule-based and expert systems but also deep-learning systems that can keep improving their performance as they get more data to incorporate.

But sometimes the older and more limited types of AI are the best ones for a particular application. Other times, not. It is critical that a CRE company looking to incorporate AI has enough internal expertise or access to outsiders who can provide it as consultants to property match the tech to the application. Often, AI might not even be in the running.

On a large scale, making it work could be expensive. Stecher mentioned that Blackstone used one big resource it had access to, which was QTS Data Centers, a data center provider that the company acquired in 2021 for about $10 billion, including debt.

Stecher said that Blackstone thinks generative AI could improve dealmaking by letting analysts more quickly and easily go through large amounts of data and then cut the time needed to evaluate deals. However, there was an interesting jump from question to answer. PE Hub specifically mentioned ChatGPT while Stecher didn’t mention the specific product.

That was probably because ChatGPT doesn’t necessarily have access to all the data that a company might want to use. Generative AI would have to be trained on the type of data being analyzed. If a company has enough data in its possession to do the training, that would be possible. But if not, where does it come from? There may be little chance a software tool uses the same types of data you need. Provide your data to a third party and you need enough legal protection to be sure the information remains safe and available only for your use. For its investment process, Blackstone is building the product in-house. That is likely an expensive and complicated task.