Weekly News Update – 2/3/23

Slowing Warehouse Construction Could Extend Squeeze on Space, Experts Say

Construction of new warehouses is slowing as developers grapple with rising interest rates and declining leasing activity, potentially prolonging an ongoing shortfall in logistics space.

U.S. industrial construction starts fell 24% in the fourth quarter of 2022 compared with the same period a year earlier, according to data from real-estate analysis firm CoStar Group Inc. Developers began building about 137 million square feet of new warehouse space, the lowest amount of new space to start construction in a quarter since the beginning of the Covid-19 pandemic.

Adrian Ponsen, national director of U.S. industrial market analytics at CoStar, said the average time it takes large industrial projects to complete construction is about 13 months, so current decisions on whether to break ground on developments will have an impact next year.

Economy Still Shows Signs of Slow, Steady Growth

Even with a stronger-than-expected 2.9% fourth quarter increase in gross domestic product, two of the nation’s most prominent freight transportation economists say the threat of a recession will persist this year.

Bob Costello, American Trucking Associations’ chief economist, and Rajeev Dhawan, director of the Economic Forecasting Center at Georgia State University, said, however, that the economy continues to perform at a strong level.

“It’s a unique time right now for the macroeconomy,” Costello told Transport Topics in the publication’s Newsmakers interview. “I still think that the most likely path for the economy is a recession, a mild recession in the first half of the year and what’s called a so-called soft landing is not out of the question. I don’t think that’s the most likely path. I think we could have a mild recession, but it should be rather short and rather shallow for the overall economy.”

Shortages 2023: 4 goods facing tight supplies this year

Many of the constraints to supply that caused headaches in 2021 and into 2022 have eased, for reasons good and bad. (Good: Capacity rebounded. Bad: Demand slumped.)

But shortages haven’t disappeared completely. Specific circumstances — from geopolitical and environmental turmoil to localized demand surges and more — are leading to stockouts of some goods.

“The macro conditions around Ukraine, climate [and] China are not changing significantly,” Simon Geale, EVP of procurement at the consultancy Proxima, said. “They’re all dragging on.”