Key Observations from the Industry Trends Meeting (formerly ITTF)

During CRE.Converge 2022 in Chicago, the NAIOP Research Foundation’s Governors, Visionaries and Distinguished Fellows met for a tour of the newly renovated Willis Tower (formerly the Sears Tower) and a brief discussion. Below are some of the following key observations from the group’s meeting:

  • Fundamentals in the industrial market remain strong, but the capital markets situation has grown more difficult.
  • There is a definite slowdown in industrial development in the Lehigh Valley of Pennsylvania, but “small-box” industrial projects continue to perform well. Cap rates have gone from 5% to 5.5%; some banks are holding back financing for new projects. In general, the group is not looking to major banks for financing.
  • There have been layoffs at Wells Fargo in Des Moines (residential mortgages); Wells Fargo is projecting that residential mortgage rates will reach and level off at 8.0%. Difficulty for homebuilders typically spills over into the broader economy.
  • Some lenders are not currently underwriting retail or office properties; only some high-quality industrial and multifamily.
  • Tech firms, especially those in the California Bay Area remain largely remote/work from anywhere. This presents a challenge for the office sector there.
  • Multiple participants shared observations about the labor market and the talent shortage in CRE. One noted that younger hires want no more than 2 days per week in the office; competition for workers is leading to higher wages. Another participant noted that parental leave is a differentiator for some younger workers. This extends to logistics workers with higher wages and some salaried positions for delivery workers.
  • Many participants expect that employee demands to work from home and a resistance to working in the office will disappear if/when there is a recession and layoffs occur.
  • Others observed that remote work can make developing a company culture challenging.

Thank you to Megan Creecy-Herman, chair, Industry Trends and Skip Kalb, chair, Research Foundation Board of Trustees, for leading the discussion.