Elion Mid-Year Review: 2024 U.S. Logistics Real Estate Outlook

Evaluating H1 2024 Market Perspectives and Forward Projections for H2 2024

Executive Summary
  • Following the COVID-19 industrial real estate surge, Elion has observed a softening in market fundamentals, particularly in terms of rent growth and asset pricing. This trend is driven by a confluence of factors, including elevated inflation and interest rates, stabilized consumer spending, and the influx of substantial new product supply.
  • Elion’s “baseline” projections correctly indicated that market conditions would further decline during H1 2024 and somewhat optimistically suggest potential stabilization and/or market recovery occurring in late 2024 or early 2025. This projection depends on expectations regarding inflation and interest rates, more normalized consumer spending levels, and a deceleration of new industrial supply. Under less optimistic scenarios (particularly if inflation rates do not decrease), recovery could be delayed until 2026, primarily due to demand-side impacts.
  • Elion is simultaneously observing accelerated transaction velocity and disposition activity, signaling a potentially more favorable acquisition market for H2 2024. We see stronger liquidity in our target investment markets despite Q1 2024 industrial transactions reaching their lowest level since 2017.1 In addition to our off-market deal-sourcing strategy, we are seeing new acquisition channels emerge as institutional sellers in our markets seek liquidity from their legacy portfolios.
  • Therefore, Elion believes that the current market dislocation, and specifically a stagnated leasing environment, provides a ripe investment environment in markets where embedded fundamentals (e.g., structural impediments to supply and long-term demand growth prospects) remain strong. Accordingly, potential investments are pricing 25-35% below 2021 peak pricing, presenting attractive opportunities to acquire industrial product significantly below replacement cost.

U.S. Macroeconomics

Consistent with the Oxford Economics “baseline” scenario, Elion’s current macroeconomic expectations indicate moderated inflation, slightly increased unemployment, and below-trend GDP and spending growth. Their guidance is as follows:

…in line with the current economic momentum and the lack of an obvious trigger for a downturn, we expect an extended period of below-trend growth into 2025…

We then forecast annual GDP growth of 1.2% in 2024 and 1.3% in 2025. Weak growth will be driven by the cumulative impact of Fed rate hikes, tighter lending conditions, more restrictive fiscal policy, and weakened household finances leading consumers to cut back on spending and business to cut back on hiring and investment. However, inflation is now moderating, and we expect further steady progress on services inflation over the course of the next year to bring core inflation down below 2.5% by the end of 2024.


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