Despite a red-hot streak that’s outperformed other commercial real estate (CRE) asset classes, it seems that bullish sentiment on the industrial sector is finally cooling off. A recent report from the Society of Industrial and Office Realtors (SIOR) indicates that realtor confidence in the market dropped to 5.5 (out of 10), compared to 7.7 in Q1. Office sentiment fared poorly as well, with a 32% drop in confidence from 6.5 in Q1 to 4.4 in Q2.
While general factors, such as prevailing economic conditions, played a role in the flagging sentiment, SIOR reported specific indicators of a downturn between Q1 and Q2 as well.
For industrial, these included:
- Only 31% of members reporting an active leasing market (down from 61%)
- An increase in “on-hold” transactions (from 10 to 14%) and canceled transactions (from 7 to 11%)
- 69% of members reporting “booming” or “average” development conditions (down from 81%)
Meanwhile, office realtors reported a similar shakeup, with SIOR noting that:
- 37% reported “little” or higher leasing activity in Q2 (down from 58%)
- Canceled transactions jumped from 7% to 11%, and
- There was a 61% reduction in the number of members reporting a “booming” or “average” development environment in their area.
SIOR adds that uncertainty around inflation and potential “economic turmoil” were the main drivers of the downturn. Or, as one of the survey respondents put it:
“Consistent commentary among clients is that the future is very uncertain and a recession likely coming.”
Concerns in context
Sentiment analysis across the broader US market indicates that the general consumer outlook continues to drop as we progress into Q3. This makes July the third consecutive month that consumer confidence has taken a knock.
Economic sentiment indicators in Europe show similar retractions, with confidence in the industrial sector declining by 3.5% in the region. Challenges such as the high cost of energy and gas shortages are hitting Europe particularly hard. In July this year, Reuters reported that Germany, the region’s industrial powerhouse, could be on the verge of recession.
For sectors like office and industrial, these reports indicate that there may be strong headwinds incoming.
SOCIAL: How have the industrial and office sectors performed in your region in recent months?