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Bob and Ben present compelling data from Newmark Zimmer showing significant increases in construction and job announcements in the US. They discuss the long-term mega trends affecting industrial assets, the shift towards secondary and tertiary markets, and the upcoming opportunities for investors.
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Transcription
Ben Fraser: Welcome back to the Invest Like a Billionaire podcast. I am your host, Ben Fraser. Today, I got together with co-host Bob Fraser. Super excited to have him on this episode today. Uh, we are excited to share some recent charts that we just came across, uh, from Newmark Zimmer. Uh, we’re going to share in a minute, um, on the industrial landscape in the U S.
So if you’ve been following the podcast like the time, you know, We’re very bullish on the industry. This is an asset class we’ve been very focused on for the past several years. And we’re kind of going all in, in a, in a bigger way, uh, at the end of this year and into next year, uh, because of what we’re seeing.
And, uh, we’re going to have some charts we’re going to show you here. So I encourage you, if you can watch this, um, on a video supported platform like YouTube. Um, so look at these charts, cause it’s going to be pretty, pretty impressive, uh, what you’re seeing, kind of the, the landscape shifting in a lot of these, Uh, themes we’ve been talking about for a while are coming to bear.
So Bob, are you ready to kind of dive in?
Bob Fraser: Let’s go. Yeah. I mean, we’ve been talking about this reshoring trend for a long time, but. You know, we love to look at big, big, big trends, uh, the things that are not changing and it’s very difficult to predict like what the stock market is going to do tomorrow or what interest rates will do, but some things are very predictable because they’re these glacial trends.
And one of those is the reshoring trend where we’re seeing. We’re seeing, um, companies moving back to America and to North America. So near shore as well, where they’re moving, you know, to Canada or primarily Mexico. And so we’re just seeing huge amounts of spending. So this left chart is construction on manufacturing facilities.
You can see it’s pretty much, it’s a hockey stick up through 2023 where companies are, are, are spending money. And, um, and on the chart on the right, you can see job announcements per year, um, through 2023 and literally job announcements, you know, 400, 000 new jobs, uh, being announced is moving to America.
So these are manufacturing logistics kind of jobs.
Ben Fraser: And this is a 66 percent increase from just two years ago. So it’s really starting to hit pretty, pretty quickly here. And then you can see here the chart on the left, this is a construction spending for factories on our kind of rolling 12 month basis.
And, um, you gotta see this chart cause this is just crazy. It’s, it’s a hockey stick for the past three years. It’s nearly tripled. And so this is spending. It’s not just on the real estate. But it’s on everything associated with manufacturing as well, right? You got the equipment, uh, you got, um, infrastructure, you’ve got all the technology.
A lot of these are like chip plants or automotive manufacturing. And then, Bob, talk about the chart on the left here. This is from New Market Zimmer, one of the new charts that we’ve just come across here.
Bob Fraser: You mean the one on the right?
Ben Fraser: Yeah, right.
Bob Fraser: Yep. Yeah. And this shows basically, uh, the amount of money spent, spent in manufacturing, like manufacturing development.
And you can see the size of the bubble. So the larger bubbles are half a million to a billion dollars. And they’re just all over. Um, the major sectors are the automotive sector, bio manufacturing, energy, and high tech. And, um, and there’s just, I mean, you know, there’s hundreds of these bubbles and, and it, it interesting too, they’re concentrated in the Midwest, in the South, and then the Rust Belt, and which, which these are, these are places that are just ideal for their centrally located, they’re inexpensive, and they have access to a very educated and, and available workforce.
So. Um, they’re just ideal places for manufacturing and logistics kind of hubs and, and generally more tax friendly as well.
We’re seeing too, it’s kind of like these shifts away from these coastal markets, right? At least rates are already very expensive, but then If you think about the types of tenants that are really wanting to bring, you know, these manufacturing, um, uh, plants back to the U.
S., they need a strong blue collar workforce, right? They need a strong labor force that is not super expensive and in a kind of good centrally located area. So you think about the Midwest, the Rust Belt, that’s, uh, so much of what comprises the workforce there and, and what’s really drawing a lot of those tenants to not only cheaper Uh, lease rates, but also really strong contingent of workforce.
So this is a chart you can see, this is construction starts nationally and industrially. And you can see very similar to multifamily, there’s a huge boom in 2021 2022 of new construction that was started and industrial in industry. And we’re starting to see, um, you know, the deliveries were really hitting, you know, hard at the end of last year into this year.
So we’ve seen kind of a tick up. In vacancy as these deliveries have hit the market, but starts is a really, really important data point because it’s a leading indicator of what the future supply is going to be, right? So in, in construction and development. Um, you can look at what’s being started right now and project out what will supply down the road.
And so you can have a pretty clear picture and you’ve seen here, it’s, it’s a drop to, to 10 year lows, the, the new starts nationally. So, and of course
There, the reason is recession fears and interest rates, right? So, what happened is all the big construction companies, industrial construction, just put their pencils down.
They just kind of said, we’re going to wait and see. And, um, and what that’s doing, it’s going to create a massive gap in deliveries over the next few years. So we’re going to see. Two to three years of a big hole and just in a big shortage of deliveries. And so here, here you’ve got this, here, here’s the big picture, right?
You’ve got this massive, massive 20, 30 year mega trend called reshoring. Meanwhile, you’ve got all the manufacturing, the building, this building, this real estate that the reshoring companies are going to need. Has completely hit an air pocket and they’ve stopped, you know, uh, because of interest rates. And now add the third element of timing is that now interest rates are going to be dropping.
And so this is, if there ever was a time to get into, you know, uh, uh, industrial construction, this is it. This is the time to do it.
Ben Fraser: Yeah. So let’s, let’s talk about some of these new charts we came across. So. Uh, Newmark Zimmer, it’s a big research firm, big brokerage, um, big focus on industrial and uh, I was just talking with one of their, uh, brokers the other day.
And he shared with me these charts from their recent kind of annual summit. And it’s just, it’s so powerful to see like a really nice chart, number one, but that just consolidates a lot of the things we’re saying into the most recent, um, kind of timeframe. So talk about what, what you’re just saying, but what they’re kind of forecasting here with supply and demand over kind of the next 12 months.
Bob Fraser: Yeah. So, so we, we saw in the, you know, the COVID timeframe kind of, kind of demand. Just really balloon, really mushroom demand for industrial, um, real estate. And then we saw supply hitting, you know, kind of a two years kind of delay from that supply. Well, demand, so people make these starts and it’s now, it now crested and is, and is dropping.
And so we’ve, we’ve been in the last couple of years, just a little bit of over, over supply relative to demand because of the post COVID kind of fears and recession fears, et cetera. And higher interest rates, uh, meanwhile, now we’re seeing a crossover again. So literally, uh, uh, we’re, we’re, we’re seeing demand, uh, crossing over where it’s starting to exceed supply.
And this is, this is what’s being projected in the next, uh, in the next couple of years.
Ben Fraser: So basically, The, the, the current vacancy in the market, which isn’t that much, I think national vacancy is like 6. 5%.
Bob Fraser: Which is, which was basically no vacancy because you always have the Albatross property, right? The really weird property one wants, right?
Ben Fraser: Yeah. So it’s really the absorption that is expected to kind of take all that existing supply off the market. And then all of a sudden they’re kind of predicting that by the end of 2025, within about 12 months from now. Um, Uh, really demand exceeds supply, and again, we’re not seeing the stars to keep up with that, and so it’s, it’s likely going to be, um, you know, a lot less product available.
Uh, you can see here kind of a similar story, but another, another visual representation of the, the, the big fall off and new starts of the pipeline. New construction is dip below 400, um, million square feet, uh, expected in 2024 for the first time in four years. So it’s been again a huge dip in that construction and then leasing is starting to mount back up, right?
So it’s kind of lagged a little bit with recession fears, uh, absorbing a lot of this new supply. But again, those trends are really starting to pick up. Tick back up where leasing has started to come back. Um, as these, these firms need it. So let’s talk about some high points. So I thought this was really interesting.
Newmarket XMR came up with four kinds of predictions. Uh, for the U. S. industrial market, um, over the next 12 to 24 months. Do you want to talk about some of these?
Bob Fraser: Yeah. The first one is that the superpowers will flex supply chain muscles more earnestly, and global shifts in supply chains will continue. So we’re seeing this.
I don’t know if you guys are tracking the news out of China, but they are starting to flex their muscles. And And I, and a bunch of products that, that they are a bunch of materials, sorry, that they are, that they’re the leading manufacturer of including rare earths are starting to restrict exports of, of a lot of these, a lot of these materials that they are, that are the leading supplier of these materials.
Um, and so we, we, we’re seeing them really starting to, to create some trade wars. Well, what ‘s going on, what’s, what’s the effect of that? That’s going to be, I mean, in America. You know, you know, we need graphite. We need rare earths. We need the, you know, all these, all these materials, but in order to produce our electronics and our, and our, you know, electric vehicles and all these things.
Well, so what’s going to happen, the reaction is going to be, Oh my God, we need to bring this into the United States. We need to source these from different places and primarily the United States. And, and in fact, the United States is like rare earths. They’re actually not rare. We have huge deposits of rare earths in the United States.
We just don’t, you know, we have huge deposits of lithium and graphite, but there, but there’s these permitting issues. And so we’re going to see, I believe the regulators and politicians start to get behind more and more, uh, the production of these things locally. And all that requires, you know, requires, you know, um, um, investment in the United States.
So we’re, we’re going to see more and more of these supply chain issues, which is only going to accelerate the desire and the need for all kinds of, of, of reshoring, nearshoring, and onshoring, uh, starting to happen.
Ben Fraser: And really what we’ve been saying for a while is this is a, this is, A mega trend, right?
This is not something that’s just going to happen for a year and then we all move on from it. The whole landscape globally is completely being rewritten right now and it’s really starting to pick up. We’re seeing that from all the investment.
Bob Fraser: There’s not too many mega trends that have, you know, 20 year time horizons where you can really see this thing is not going to stop for 20 years.
I mean, it may have. You know, a little bit of variance year to year, but this is, this is a massive trend that’s happening and it’s not going to stop anytime soon. And this, this is one of them. So Ben hit, hit the second point here about secondary tertiary markets.
Ben Fraser: Yeah. So the second prediction is this absorption of secondary and tertiary markets will continue to outpace primary markets.
Um, and again, a lot of the reason for that, as we shared before is, is cost. And access to, uh, you know, bigger primary markets through distribution. And so a lot of the thing that’s driving the, the, the shift to the U S is, you know, good, strong labor force and good value for what you’re paying for that.
Bob Fraser: Exactly. Just for instance, I mean, we were looking at developing some industry in Salt Lake City. And which I, which is kind of a primary market and, and you would think, you know, the cost would be reasonable, but the costs were insane. I mean, the manufacturing costs were something like two to three times the labor force costs or higher.
So if you’re looking to place a manufacturing facility somewhere, you know, there’s this, these secondary and tertiary markets, you know, let’s say Wichita, Des Moines, you know, um, small towns in Georgia, you know, and South Carolina, the, these things are just, they’re superior. And so actually predicting absorption is going to increase and outpace the primary markets.
Why? Well, they have access to the workforce and they have access to logistics, right? The highways, ports, trains, et cetera.
Ben Fraser: Yeah. The other prediction third here is heightened competition for prime land positions will have a constricting effect on spec industrial pipelines. And we’ve been seeing this in a lot of markets, but a lot of the land has already been. It’s like, Oh, I can’t just build it anywhere.
It’s like, Oh, it’s actually difficult to get good land and good locations. And because a lot of these bigger developers and bigger, you know, firms, uh, that have, have maybe some vacancy out there from their big, big facilities that they built, um, that aren’t really what the market needs. They’re pencils down right now.
And so they’re not developing the same way they were. And, and. You know, we’re really kind of on the front end of this, uh, the, the demand to start to outpace supply. And so it’s gonna need to have a catch up effect and it’s, I think it’d be a pretty big, uh, lag or kind of gap in the market for, um, what we’re seeing on, on the demand side.
And that kind of follows the fourth here. You want to talk about that?
Bob Fraser: Demand consistently begins to outpace supply in 2025 and rent growth rebounds in 2026. So again, this is hitting the supply and demand curve where we’re seeing a crossover again. So we saw a crossover, a negative crossover a couple of years ago, and, and now we’re seeing a positive crossover.
So this is going to be, you know, uh, time to make hay while the sun is shining.
Ben Fraser: It’s to me it’s I kind of had the visualization of I think it was Wayne Gretzky that said, you know Don’t skate to where the puck is, but to where it’s going. Right. I think so much of the time as investors, we are backward looking.
It’s like, Oh, well, there’s a lot of supply that, that hit. So it must be a down market. It’s like, no, no, no. Now is the time to get in front of it. Because if you’re developing right after building right now, by the time this gets delivered to the market, you’re going to be the only game in town. You’re, you’re going to be the only option that the tenants have.
And getting in front of that curve and skating to where that puck is going to be is so, so important. And, uh, again, this is why we’re so excited, like right now feels like a really, really important time to be jumping into the market. And uh, you know, if, if you’re on our email list, you’ll probably be hearing about some of the projects we’ve got going on, but we’re really going, you know, full on doubling down into industrial right now, or the next 12 months.
because of that. So yeah, if you want to get on an email list, be sure to join our investor club. You can see the link at the top on the WNR podcast. com. You can check out our website, Aspen funds. us and sign up for our latest offerings. We are going to be launching. several industrial development projects.
Um, and, uh, you have to be an accredited investor to participate in those, but be sure to learn more about these. Cause this is a trend that you, uh, don’t want to look backwards a couple of years from now and wish, Oh man, I, I heard someone talk about that. I heard the phrase, let’s talk about that. And I wish I would’ve gotten involved.
And so, uh, be sure to get more information on that. We thank you so much for listening and hope this is a helpful, uh, episode and to be sure to subscribe, uh, stay tuned for more educational content like this.
This is the Invest Like a Billionaire podcast where we uncover the alternative investments and strategies that billionaires use to grow wealth. The tools and tactics you’ll learn from this podcast will make you a better investor. And help you build legacy wealth. Join us as we dive into the world of alternative investments, uncover strategies of the ultra wealthy, discuss economics and interview successful investors.
