TAG Industrial Watch: September 30, 2023

Higher borrowing costs have resulted in a corporate landscape that is plagued with bankruptcies in 2023. After 11 rate hikes, the consequences are beginning to unfold as corporations with overstretched balance sheets are struggling to stay afloat. As of July, over 400 corporations have gone under. Apart from the heights of the pandemic in 2020, the U.S. has not seen these kinds of numbers since 2010, when 530 corporations had filed for bankruptcy through July. Although the economy as a whole will be affected by the rising interest rate environment, some sectors are feeling the effects harder than others. With the second most bankruptcies so far in 2023, the industrial sector is inherently at greater risk of default as it is historically more capital intensive and thus more reliant upon debt compared to other sectors. With the potential for more rate hikes in the future, and a slew of corporate debt coming due at much higher costs, the number of industrial firms going under is likely to surge. As an owner-user of industrial real estate, it’s a good time to consider a sale-leaseback in order to raise capital that could be used as a lifeline if needed.

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