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Good morning. Industrial real estate continues to prove why it’s the CRE industry’s favorite child, with a record 450 MSF of space delivered last year. Meanwhile, concerned about an impending recession, Microsoft (MSFT) is jumping ship on its plans for a 90-acre campus in Atlanta’s Westside.

FULLY STOCKED

450 MSF of New Industrial Space Delivered in 2022, Setting a National Record

Industrial supply reached new heights in 2022 and is projected to keep growing in 2023. The latest U.S. industrial report showed that in the 118 markets monitored by CommercialEdge, over 450 million sq ft of industrial supply was delivered in 2022, with an additional 713 million sq ft under construction at the end of the year.

Econ 101: Despite all the new development, supply couldn’t keep pace with demand, causing the average vacancy rate for the top 30 MSAs to plummet to 3.9%. Dallas, Indianapolis, Chicago, Phoenix, and California’s Inland Empire were the most active new construction markets, accounting for 27% of all new deliveries.

Up and to the right: California’s Inland Empire had the highest rent growth at 14.2% over the last 12 months, followed by LA at 10.4% and Orange County at 7.3%. Tenants clamoring for space in CA are spilling into Phoenix, bringing rents up 7.1% over the past year.

➥ THE TAKEAWAY

Price per pound: Although last year was a great year for the sector with $88.3B in transactions, it couldn’t top 2021’s transaction volume of $125.7B. Deal flow slowed significantly during the back half of the year in response to the Fed’s aggressive rate hikes. Investors seem to be proceeding with caution, as the average sale price for an industrial building has soared from $83 PSF in 2021 to $132 PSF in 2022.

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ABORT MISSION

Microsoft Slams the Brakes on its 90-Acre Campus in Atlanta

Microsoft (MSFT) is hitting pause on its plans for a 90-acre campus in Grove Park, Atlanta. Fearing a looming recession, the company is reducing its headcount by 5% and rethinking its global real estate footprint.

Grand plans: Back in 2021, Microsoft (MSFT) scooped up the land for $127M from baseball legend Mark Teixeira. The plans included a sprawling mixed-use campus—affordable housing, convenient shopping options, and a workplace fit for 15,000 employees. The campus would make Microsoft (MSFT) a top 10 employer in the Metro Atlanta region.

All the eggs in one basket: In recent years, Atlanta has emerged as a tech hub for companies like Alphabet (GOOGL) and Meta (META). While the new jobs and infrastructure have been great for the city, they’ve also unintentionally displaced many long-time residents. Grove Park saw the same fate—shortly after Microsoft (MSFT) announced its campus plans, home prices ran up, and nearly 95% of homes on the market went under contract within months.

➥ THE TAKEAWAY

Keep your options open: Microsoft (MSFT) might be hitting pause, but don’t worry, it’s not selling the land. They have set aside 25% (22.5 acres out of 90) for community needs and plan to resume work when the timing is right. However, some neighborhood leaders have been losing confidence in Microsoft and are hoping the company will resume engagement with the community.

• Batter up: The Tampa Bay Rays & Hines Development are redeveloping the historic 86-acre Gas Plant District in downtown St. Pete into a new ballpark for the Rays.

• Watch your toe: University of Oxford economist, Bent Flyvbjerg, has some advice for megadevelopers—think brick-by-brick, or use legos.

• More cost cutting: Alphabet (GOOGL) is the latest to join the list of companies bailing on office leases—the company is willing to take a $500M hit to close offices and scrap leases.

• Welcome home: DevMar Development sold the 100-unit “The Metro” in St. Pete, FL for $28.2M to a private investor who plans to convert the building into hotel apartments.

• Warning signs: According to Bank of America (BAC), economic growth may stall in the second half of the year, leading to significant losses for stock investors buying into the recent rally.

• SHOW UP!: The House passed the SHOW UP Act, forcing federal agencies to bring employees back into the office.

• We the people: A Miami judge ruled in favor of the condo association in a dispute between ownership and the HOA over common area restrictions.

• Money talks: CRE companies are conflicted by the massive cost savings they could incur by allowing employees to work remotely.

• Back in action: After years of financial struggles, 125 Greenwich St. in Lower Manhattan is heading towards completion, thanks to financing from Northwind Group.

• Shopping spree: Across multiple transactions totaling over $1B, Carmel Partners acquired the Westlake Village Apartments, encompassing 3,000 units in the Bay Area.

• Passing the torch: Blackstone (BX) is shaking things up—Wesley LePatner, the global COO, will be taking the reins on the company’s Core+ real estate business.

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