5 Trends to Watch

Here are five market trends to monitor this month, in the context of your real estate investing portfolio:

1. INDUSTRIAL CONTINUES TO SHINE

The industrial real estate sector, particularly last-mile logistics and large-scale distribution centers, continues to attract significant interest from commercial real estate (CRE) investors. This heightened demand is driven primarily by the growth of e-commerce, which has reshaped supply chains worldwide. As consumers increasingly expect fast delivery times, companies are investing heavily in logistics infrastructure to enhance their delivery capabilities, particularly in urban and suburban areas. Last-mile facilities, which handle the final leg of delivery from distribution hubs to consumers, are crucial for meeting these expectations. The rise of same-day and next-day delivery services has pushed companies to seek strategically located industrial properties close to consumer centers to streamline operations and cut transportation costs.

In addition to last-mile logistics, big-box distribution centers are experiencing a surge in demand. These facilities, often exceeding 500,000 square feet, serve as crucial nodes in global supply chains, storing and distributing products on a large scale. As retailers and manufacturers prioritize efficiency and cost management, they are expanding their network of large warehouses to accommodate higher volumes of goods. CRE investors are capitalizing on this trend, seeing opportunities in markets where vacancy rates for industrial properties remain low and rents are rising. The growing importance of robust logistics networks has made the industrial sector one of the most resilient and sought-after asset classes in commercial real estate.

2. BUSINESS LEADERS OPTIMISTIC

Despite economic uncertainty, a survey by JLL revealed that two-thirds of business leaders expect their corporate real estate budgets to increase through 2030. This signals optimism for long-term growth, but companies are also planning smarter portfolio use, focusing on efficiency and sustainability. These budgets could be spent on expanding retail or office footprints, but could also be used to strategically expand supply chains with targeted industrial properties.?

EquityMultiple has focused on potentially resilient commercial real estate types like industrial and multifamily. Particularly, we recently launched Saint Cloud Multi-Bay Industrial, a multi-tenant commercial property just outside of Orlando, FL. The sponsor, Ultimate Realty, is focused on raising rents to market rates in a very low vacancy and high demand market.?

3. CHANGING THE RULES ON FANNIE & FREDDIE

We wrote last month about potential tightening of standards at Fannie Mae and Freddie Mac. Well, this past week the Wall Street Journal reported on some potential changes advocated by the Trump administration that would change how Fannie and Freddie operate. The two mortgage agencies operate as government-sponsored enterprises that are also publicly traded. The proposal by Trump is to further privatize the agencies. This is a long way off from approval but further changes to the way the housing industry operates could be seen as reflecting frustration many Americans see in their housing situations. The increase of private ownership of the mortgage securitization process is likely a call for more efficiency in the process, but it remains to be seen how this would affect commercial real estate broadly.?

4. PLACE YOUR BETS

Like any other investment company, we like to know what’s going on with the markets. And, given the opportunity we would love to know what the future holds for rates, sentiment, or any number of economic indicators. Unfortunately, we are not prognosticators and thus focus on finding quality properties, trustworthy operators, and favorably structured investments. But that hasn’t stopped others from trying to bet on the future.

The courts recently rejected a block on market betting platform Kalshi which allows users to bet on various economic indicators and even the weather. This has opened up the door for further speculation in myriad areas including the result of the presidential election. We will let others place their bets, and we will continue to focus on tangible, real estate-backed investments.

5. SHOULD I BE CONCERNED?

Many real estate investors are understandably interested in the potential impact of the 2024 U.S. elections, bracing themselves for changes in economic and tax policies that could disrupt CRE market conditions. According to a Forbes article, uncertainties surrounding shifts in government leadership and regulatory changes often heighten anxiety within the investment community. Investors are particularly attuned to potential alterations to tax regulations and economic initiatives that could affect property values and returns.

However, as highlighted by Weatherly Asset Management, historical evidence suggests these fears are often misplaced; though elections tend to cause short-term market fluctuations, their long-term impact on real estate investments is minimal, and a recent report from JPMorgan Chase suggests that CRE markets have historically responded to the macroeconomic conditions surrounding elections rather than the elections themselves. Both Forbes and Weatherly emphasize that successful investors should prioritize the fundamentals, such as asset quality and economic indicators, as opposed to overreacting to political outcomes. A focus on sound, long-term strategies and resilient investments may help real estate investors manage election-related uncertainty more effectively.

Want to discuss? Reach out to us at [email protected].