TAG Industrial Watch: September 9, 2023

It is no secret that commercial real estate is no longer experiencing the boom witnessed during the post-COVID-19 era. For the second quarter, debt origination fell by 52 percent year-over-year (The Real Deal) with banks tightening their lending standards across the board. In turn, sales volume has plummeted as financing deals have become increasingly more difficult and the spread between buyers and sellers widens. The current market conditions yield a not-so-optimistic outlook for the commercial real estate industry. With approximately $900 billion of real estate loans and securities coming due by the end of next year (WSJ), there will certainly be losses on loans that will have to be refinanced at higher interest rates. Consequently, this could set off a chain reaction, or “doom loop” as banks tighten up and restrict lending further, causing property prices to decline and ultimately exacerbating losses for lenders.

While this is bad news for lenders, this is good news for tenants (especially in the industrial market where rents continue to rise) who want to stop renting and start owning. After falling to the lowest level in two decades, the share of industrial properties purchased by tenants is up from 7% in 2022 to 13% so far in 2023 (CoStar). As cap rates rise, putting more pressure on property values, buying opportunities for tenants will continue to improve.

I N D U S T R I A L   N E W S

Shovel-Ready Industrial Site In SoCal Sells For $61M
Commercial Observer – July 19, 2023
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