April 2023

NAI Global March Logistics Journal

NAI Global March Logistics Journal

NAI Global March Logistics Journal

Energy and Infrastructure Projects Shaping U.S. Industrial Markets while Economic Uncertainty Brings Leasing and Sales Activity Back to Pre-Pandemic Levels

The recent industrial and logistics virtual meeting hosted by NAI Global and moderated by Steve Pastor with NAI James E. Hanson in Teterboro, New Jersey, touched on a number of big- picture events that are shaping the immediate and long-term impact on industrial markets in the nation’s central and eastern regions of the country – namely, the conditional-approval of the $31 billion merger of Canadian Pacific and Kansas City Southern railroads, and massive infrastructure and energy projects underway in numerous markets.

After two years of review by federal regulators, the U.S. Surface Transportation Board approved the merger of the two railroad companies that would shift approximately 64,000 truckloads of goods to rails from road annually, and foster additional investment. The deal also strengthens the trade alliance under the umbrella of USMCA, the agreement between the U.S., Mexico and Canada, as well as contributes to the evolving nearshoring trends that are changing how supply chains work in the Americas.

The new line will be known as Canadian Pacific Kansas City (CPKC) and will be the parent company of Kansas City Southern Mexico (KCSM), which announced plans to invest US $200 million in Mexico last month.

The new railroad will transport grain from the Midwest to the Gulf Coast and Mexico, as well as intermodal freight goods between Dallas and Chicago. It will facilitate “the trade in automotive parts, finished vehicles and other containerized mixed goods between the United States and Mexico,” according to a statement associated with the news.

The merger combines two of the smaller railroad operators in the U.S., Canada and Mexico and combined, will be the 6th largest rail carrier in the three countries, behind Canadian National.

Additional infrastructure projects mentioned during the NAI Global virtual industrial meeting that will be creating jobs include:

In Baltimore, the Howard Street Tunnel Project is ongoing – it will allow double-stacked rail cars to reach the Port of Baltimore. Further, a 165-acre new container terminal is going forward and creating 1,000 jobs at Tradepoint Atlantic, a 3,300-acre global logistics center featuring an unmatched combination of access to deepwater berths, rails and highways. Improvement work is also happening at the Seagirt Marine Terminal that will only enhance the region’s logistics capabilities.

In New Orleans, Venture Global secured funding to build a $21 billion terminal (in two phases) that would produce some $20 million tons annually of (MTPA – million tonnes per annum) of Liquified Natural Gas, or LNG. It is the largest project financing ever done in the LNG space.

In Columbus, OH, Invenergy, a leading privately-held, American-led global developer, owner, and operator of sustainable energy solutions, will invest more than $600 million through Illuminate USA to create one of the largest solar panel production facilities in the country. The company bought a site and 1.1 million-square-foot spec project from Red Rock Developments (headquartered in Columbia, SC), paying $94 a foot for the real estate.

According to one of the brokers in the meeting, the same company is looking into developing a hydrocarbon facility near Albany, New York.

West Virginia, meanwhile, is staying committed to energy industries as it moves away from coal. The state will soon be modeling a new format for energy, called Small Modular Reactors (SMR) which utilize cost-competitive sodium fast reactor combined with molten salt energy storage system) and concurrently, West Virginia has formed a public and private partnership program to establish a “Hydrogen Hub” in the region.

While none of the brokers during the March meeting described their respective markets as slowing, a number of them did acknowledge conditions were returning to pre-pandemic levels of activity—or a return to normalcy after a frenetic-few years. In Columbus, for example, a number of big-box spec projects (in the 1MSF range) are sitting empty with few bidders, and of the new product under construction, only about 30% of it is pre-leased.

That’s not so in nearby Louisville, where except for a million-square-footer owned by VanTrust Real Estate, there is hardly anything available and inventory is on track to be fully depleted by mid-year.

Yet transactions are getting closed and demand remains elevated in multiple regions of the country. Tesla took down a large industrial building in the Albany market in a 12-year commitment at $13.25 a foot, for example. Champion Container paid $9.2 million for a new 72,000-square-foot warehouse building in Quakertown, PA. Kubota Tractor committed to a 500,000-square-foot project in the Atlanta market. The Allenstown area of Pennsylvania continues to see interest from Northern New Jersey companies looking for space and lower rents.

Suburban Raleigh is getting more attention from industrial developers and occupiers as the region’s core experiences higher occupancy and rental rates.

One broker reported that two pending investment sales collapsed, with buyers stating that high interest rates and economic uncertainty killed the deals. On the other hand, however, the same broker said that Workspace Property Trust, which owns and operates a national network of office and light industrial properties in 22 prominent U.S. markets, has capital and is looking to do deals.

There was even talk of a developer looking to establish and build drone ports in multiple U.S. markets. The ‘ports’ would require existing runway space and other available acreage to accommodate the business model.

A couple meeting participants said construction lending is beginning to dry up and the call concluded with a discussion of the impacts to CRE lending following the recent and sudden collapse of Signature Bank in New York and Silicon Valley Bank in California – and the subsequent banking crisis the bank failures spurred in mid-March. The bottom line is that a banking crisis is not good—not at all, for the commercial real estate industry as regional banks are often the lifeline to regional developers and merchant builders.

Thought Leaders

Steve Pastor, NAI James E. Hanson, Teterboro, NJ
Michael Stanzel, SIOR, NAI Robert Lynn, Dallas, TX
Adam Roth, SIOR, CCIM, NAI Hiffman, Chicago, IL
Jeff Wilke, SIOR, LEED AP, NAI Latter & Blum, New Orleans, LA
Bryce Custer, SIOR, CCIM, NAI Spring, Ohio and W. Virginia
Tyler Culberson, NAI Platform, Albany, NY
Fred Meyer, SIOR, NAI Mertz, Mt. Laurel, NJ
Ed Brown, SIOR, CCIM, NAI Tri Properties, Raleigh, NC
Mike Chambers, NAI Brannen Goddard, Atlanta, GA

Matt Osowski, SIOR, NAI Ohio Equities, Columbus, OH
Mike Adams, NAI Summit, Allentown, PA
Bob Sullivan, NAI Sullivan Group, Oklahoma City, OK
Clark Everett, NAI Sullivan Group, Oklahoma, City, OK
Steve Martens, CPM, CCIM, SIOR, NAI Martens, Wichita, KS
Jim Caronna, SIOR, NAI KLNB, Baltimore, MD
Jeff Licht, SIOR, NAI Mertz, Philadelphia, PA

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About NAI Hiffman:  

NAI Hiffman is one of the largest independent commercial real estate services firms in the US, with a primary focus on metropolitan Chicago, and part of the NAI Global network. We provide institutional and private leasing, property management, tenant representation, capital markets, project services, research, and marketing services for owners and occupiers of commercial real estate. To meet our clients’ growing needs outside of our exclusive NAI Hiffman territory, we launched Hiffman National, our dedicated property solutions division, which provides property management, project services, and property accounting services across the country. NAI Hiffman | Hiffman National is an award winning company headquartered in suburban Chicago, with more than 250 employees strategically located throughout North America.

About Hiffman National: 

Hiffman National is one of the US’s largest independent commercial real estate property management firms, providing institutional and private clients exceptional customized solutions for property management, project management, property accounting, lease administration, marketing, and research. The firm’s comprehensive property management platform and attentive approach to service contribute to successful life-long relationships and client satisfaction. As a nationally bestowed Top Workplace, and recognized CRE award winner, Hiffman National is headquartered in suburban Chicago, with more than 250 employees nationally and an additional six hub locations and 25 satellite offices across North America.

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