We’ve said it before. Issues like supply chain backlogs, labor shortages and the continued consequences of COVID-19 continue to dampen the surge in consumer demand. And another worry seems to be looming.
Inflation.
Industrial, though, still seems to be marching on with record numbers — especially in Chicago. But could trouble be lurking in the shadows?
Rising inflation is not preventing investment activity, but it is prompting investors to reexamine projections and revise expectations for profitability, according to LightBox’s 2022 Q1 RCM Investor Sentiment Report.
Inflation has risen from 2.6% in March of 2021 to 5.4% from June through September of 2021 to 7.5% at the end of January 2022. LightBox found inflation to be No. 3 in terms of highest concern. Interest rates are up there, too.
Higher inflation and growing interest rates comes with large-scale concerns. Inflation will impact buying power. Commodity prices are increasing. Slower delivery times are extending deadlines. Shortages are being felt across the U.S. All of this will influence capital markets activity, and LightBox confirmed that these economic headwinds will likely affect capital access points.
Because of this, CRG SVP Workplace Strategy Geoffrey Kasselman said there might be a decline in new construction deliveries in the second half of the year.
“Strong demand and less supply being delivered means that if you need to occupy space at the end of 2022 you may be slugging it out for the best available options. Demand for space is uninterrupted; delivery and occupancy are simply being delayed.”
Events between Russia and Ukraine are worth considering, too. Things have yet to simmer down, adding yet another layer of uncertainty to the market. Besides its effect on U.S. inflation, a lot depends on the length of “geo-political turbulence,” according to LightBox. And it’s too early to determine the lasting economic consequences.
“Some players may adopt a wait-and-see policy or pull out of the market completely, which reduces demand-side competition and could lead to somewhat softer pricing,” said Kasselman. “On the other hand, alternative institutional investments are likely to underperform as a result of such turbulence, which could end up boding well for an influx of new real estate capital seeking better returns.”
The Industrial Boom has continued, however — despite all variables — because of e-commerce. Population growth is spilling into secondary markets, and developers continue to follow the outward trend, their work, ensuring, in some cases, one-hour delivery to consumers. LightBox found that sales reached $389.9 billion between 2019 and 2021.
