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Fed Campaign toward Neutrality and the Difficult Row to Hoe for the ECB

The coming days are eventful. And that is with the known unknown, Russia’s actions in Ukraine, held in abeyance.  It does not seem as if either side…



The coming days are eventful. And that is with the known unknown, Russia's actions in Ukraine, held in abeyance.  

It does not seem as if either side is truly serious about negotiations. Kyiv's proposal of a security guarantee by Poland or the US is not realistic. It would be tantamount to joining NATO. Ukraine President Zelensky appears to think a military victory may still be had.  

There are many claims about Putin's intentions and state of mind. It seems to be largely speculation and can be consistent with the kind of psych-ops one would expect in the fog of war. Ironically, the mad-man tactic is often associated with US President Nixon, who wanted to convince North Vietnam that he was sufficiently unhinged to do anything, including the use of nuclear weapons. Nixon apparently also wanted the Soviet Union to think that he was dangerously mad. In October 1969, Nixon put the US military forces on full global war readiness, and bombers with nuclear weapons flew patterns near Soviet territory for three days. Machiavelli, the first "realist," appreciated the tactical advantage under certain conditions.  

Putin seems crazy but crazy like a fox. He must be as surprised as everyone at the depth and breadth of the sanctions. After all, Russia invaded Ukraine and annexed Crimea, and the world's response was minimal at best. Who would have thought that into the supposed vacuum left by the end of the Merkel-era, an SPD-led government of Greens and Free Democrats would commit to such a volte-face and make a significant commitment to boosting its military capability? The Economic Minister (from the Green Party) even suggested a willingness to discuss planned closures of the country's last three nuclear plants to reduce reliance on Russian energy. However, Chancellor Scholz insisted on sticking with the shutdowns.  

Putin must be surprised, as are so many Western observers who exaggerated Russia's military prowess. It has cost the head of French military intelligence his job. Some of Russia's military spending may be feathering someone's bed, and the funds that were spent too often acquired shoddy goods. This is all the more reason why Putin is unlikely to negotiate without a significant military victory in hand. It could include securing the territories claimed by Donetsk and Lugansk. Ironically, negotiations, at this stage, seem unlikely to be fruitful until there is a change in the war itself.

The ECB finds itself in a pickle as it meets on April 14! Consumer inflation surged to 7.5% in March (preliminary estimate) from 5.9% in February. In March alone, it rose 2.5%. At the same time, food and energy shock and other economic disruptions from Russia's invasion of Ukraine and the sanction response will hit growth. The key issue is whether an economic contraction can be avoided. 

There may be two mitigating factors. First, many EMU members are cutting taxes on fuel. This will ease one pressure on CPI for as long as it lasts (~six months). Second, military and energy spending look set to increase to move into the space being vacated from the slowing of Covid-related efforts.  

However, the ECB's track record leaves something to be desired. Consider the last two times the ECB hiked rates. First, in 2008, with Brent pushing about $140 a barrel, Trichet led the ECB into hiking rates in July, in between, as it were, Bear Stearns's demise and the epic failure of Lehman Brothers. The recovery from the 08-09 contraction stalled as the sovereign debt crisis phase unfolded. However, prices pressures were evident. The mild bout of deflation in 2009 had given way to higher prices, and CPI was pushing above 2% in early 2011. Trichet again led the ECB to not one but two hikes in 2011 (April and July). Draghi replaced Trichet, and at his first two meetings as President, the ECB unwound both of Trichet's hikes. Nevertheless, the eurozone contracted for six quarters from Q4 11 through Q1 13.  

Can history do more than rhyme? The swaps market has a 25 bp hike discounted by the end of Q3 and another by the end of Q4. The near-term economic risks seem squarely on the downside, though the March composite PMI looked fairly resilient (54.9 vs. 55.5). Even before the war, the eurozone economy was vulnerable. The composite PMI was 52.3 in January, the lowest since February 2021 and the fifth month of slowing activity in six months. German and French industrial output were considerably weaker than expected in February, while Russia's invasion of Ukraine did not take place until late in the month.  

The economic institutes that advise the German chancellor cut this year's growth forecast from 4.6% to 1.8%. Italy reportedly cut this year's GDP projection to 3.1% from 4.7% and 2.4% from 2.8% next year.  The Bank of Italy warns that the economy may contract in Q1. These still seem optimistic. The IMF/World Bank will update their forecasts at the Spring meetings (April 18-24). It seems clear that slower growth in China, Eurozone, and Russia is a foregone conclusion. The World Bank and the IMF have US growth at 3.7% and 4.0% this year. That, too, looks too high. The median Fed forecast in March was 2.8%.  

Without action or updated forecasts, the interest in the ECB meeting will be in its forward guidance about its bond purchases. The ECB needs to have greater flexibility going forward precisely because of the high degree of uncertainty. Like the Federal Reserve, it is committed to ending its bond purchases before lifting rates. That sequence is important, but it also ties the ECB's hands. It needs to finish its bond-buying sooner to give it the freedom to hike rates in Q3. In March, after detailing the monthly purchases in Q2, it said, "The calibration of net purchases for the third quarter will be data-dependent and reflect its evolving assessment of the outlook."  The ECB is unlikely to make a firm commitment, but some guidance in this direction would be helpful.  

In the two days before the ECB meets, the central banks of New Zealand and Canada will hold policy meetings. Both are likely to raise rates. The RBNZ has hiked its official cash rate by 25 bp for three consecutive meetings. It now stands at 1.0%, where it was from August 2019-January 2020 before the pandemic struck. The market expects the RBNZ to get more aggressive. The pricing in the swaps market suggest participants lean toward a 50 bp hike. There are almost 90 bp of tightening discounted by the end of next month and nearly 190 bp of tightening in the next six months.  

The Australian dollar, where the central bank has not hiked yet, is the strongest among the major currencies this year with a 2.7% gain against the US dollar. The New Zealand dollar is next with about a 1.5% gain, and the Canadian dollar is in third place with around a 0.5% gain. The Bank of Canada is also about to ratchet up its tightening cycle, which began last month with a 25 bp rate hike. The swaps market settled last week with a 63 bp of tightening discounted for April 13.  This implies the market is split between a 50 bp and 75 bp hike.  This seems a bit much and warns of the downside risk in the Canadian dollar. The swaps curve has almost 120 bp of tightening discounted over the next three months. In addition, the Bank of Canada is expected to slow the reinvestment of maturing proceeds from its holdings, allowing the balance sheet to begin shrinking. Like the US, the market now sees a terminal policy rate around 3% in Canada.  

The central bank of South Korea and Turkey also hold policy meetings on April 14. Neither one is expected to change policy. However, we suspect that after the 4.1% March CPI print, South Korea's central bank is more likely to surprise than Turkey. South Korea's 7-day repo rate stands a 1.25%. It hiked rates three times in the cycle that began last August. After hiking in both December 2021 and January 2022, the Bank of Korea stood pat in February. With a 2.7% unemployment rate (3.7% at the end of 2019), a strong economy, rising price pressures, and a soft won (-2.4% year-to-date), there may not be a compelling reason not to raise rates.  

Turkey's experiment with non-orthodox economics is failing, and it is poorer because of it. Since the end of 2019, during the Covid-era, the lira is the weakest currency in the world, depreciating by nearly 60%.   The CPI in March had risen by a record 61.1% year-over-year. In March 2021, Turkey's CPI had increased by almost 17% over the previous 12 months. Nor has the currency depreciation boosted the external balance. The average monthly trade deficit was nearly $2.5 bln in 2019 and almost $4.2 bln in 2020. Last year's average was $3.85 bln. The rise in energy and food prices is spurring new deterioration. The January-February 2022 trade deficit stood at about $18.1 bln. In the first two months of 2021, the deficit was $6.4 bln.  

The People's Bank of China does not have regular policy-making meetings. However, officials need to act soon, given the lockdowns, the economic disruptions, and the sub-50 PMI readings. The benchmark 1-year medium-term lending facility will be set next week. It was cut by 10 bp in January to 2.85%. When the pandemic first struck, the 1-year MLF was at 3.25%. A cut is likely, and a move on par with the 20 bp cut in April 2020 would signal the seriousness that policymakers regard the economic slump. A cut in the MLF would also set the stage for a reduction in the loan prime rate, set on the 20th of each month.  

Separately, China will report its March inflation gauges and trade figures. When China's PPI was accelerating last year, some observers tried linking its rise to upward pressure on US CPI. We were skeptical, and few are making such connections now. China's PPI likely declined for the fifth consecutive month in March. It peaked at 13.5% in October 2021. and is expected to have fallen toward 8% in March after finishing last year at 10.3%. China's CPI has not risen since last November when it was at 2.3% year-over-year. It was steady at 0.9% in January and February and is expected to have increased to about 1.4% in March. It finished last year at 1.5%. Unlike in the US, of Beijing's challenges, inflation is not among the most pressing, where Fed Governor Brainard called it the "paramount" challenge.   

China's trade is being disrupted by its shutdowns. The monthly trade surplus hit a record high of $94.4 bln in December 2021 and has fallen sharply. It stood at $30.6 bln in February and likely fell further last month. The median forecast (Bloomberg survey) sees a $22.4 bln surplus, which would be the smallest since March 2021.  

The US reports prices (CPI, PPI, import/export), consumption (retail sales), and a measure of output (industrial and manufacturing production). Inflation likely accelerated from the 7.9% year-over-year pace in February toward something closer to 8.5%. The core rate will edge up to a little more than 6.5%. Producer prices also look like they firmed last month. Meanwhile, industrial output is expected to have increased by 0.4% after a 0.5% gain in February. However, manufacturing cannot maintain the 1.2% surge seen in February. It increased by an average of 0.4% over the past six months. If it comes in there, it is still a solid report. The capacity utilization rate likely rose to a new post-Covid high of almost 78%. At the end of 2019, the capacity utilization rate was about 76.5%.  

The optics of the retail sales report may be better than the details. Higher prices likely flattered this report made in nominal rather than real (inflation-adjusted) terms. What this means is, like February, the more costly gasoline squeezed out other purchases. Excluding autos and gasoline, retail sales are expected to be flat (median, Bloomberg survey) after falling by 0.4% in February. When autos, gasoline, building materials, and food services are excluded, which GDP models do, while picking up the excluded items in other time series, retail sales are expected to fall by 0.2% after February's 1.2% drop.  

The data may help fine-tune the Q1 GDP forecast. The Atlanta Fed GDPNow sees Q1 data tracking a 1.1% annualized pace. The median forecast in the Bloomberg survey is a little more optimistic at 1.5%. There may be some impact for headline traders and momentum players.   However, the high-frequency data points may not impact Fed expectations very much in terms of monetary policy. The market appears to accept that the Federal Reserve has begun a campaign that will bring the Fed funds target rate back to neutral, where it is expected to be in the longer term, ostensibly assuming its policy goals have been achieved. In March, all but three officials saw the neutral rate being between 2.25% and 3.0%. The Fed funds futures imply a 2.55% Fed funds rate at the end of the year.  

Let us conclude with some thoughts about the French election. Even though the polls have tightened, little has changed. No candidate is expected to win in the first round on April 10. The run-off between the top two candidates, expected to be Macron and Le Pen, is thought to most likely result in Macron's re-election. Anything that threatens this scenario, like Le Pen emerging ahead of Macron, rather than the other way around, in the first round, would probably be seen as negative for the euro. 

With Merkel retiring, Macron may have wanted to fill the leadership vacuum, but the SPD-led coalition government in Berlin has risen to the occasion. However, Macron's vulnerability has domestic roots. Macron wants to make it a contest over leadership and values, and Le Pen wants to make it into a referendum about the rising cost of living. The far-right candidate Zemmour's lasting influence may be to have made Le Pen seem more moderate. A Macron-Le Pen contest could discourage voters from the center-left. In 2017, Macron won the second round with 2/3 of the vote. This time he may be lucky to get more than 55%. The implications for Macron's domestic agenda will depend on the legislative elections in June.  


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Riley Gaines Explains How Women’s Sports Are Rigged To Promote The Trans Agenda

Riley Gaines Explains How Women’s Sports Are Rigged To Promote The Trans Agenda

Is there a light forming when it comes to the long, dark and…



Riley Gaines Explains How Women's Sports Are Rigged To Promote The Trans Agenda

Is there a light forming when it comes to the long, dark and bewildering tunnel of social justice cultism?  Global events have been so frenetic that many people might not remember, but only a couple years ago Big Tech companies and numerous governments were openly aligned in favor of mass censorship.  Not just to prevent the public from investigating the facts surrounding the pandemic farce, but to silence anyone questioning the validity of woke concepts like trans ideology. 

From 2020-2022 was the closest the west has come in a long time to a complete erasure of freedom of speech.  Even today there are still countries and Europe and places like Canada or Australia that are charging forward with draconian speech laws.  The phrase "radical speech" is starting to circulate within pro-censorship circles in reference to any platform where people are allowed to talk critically.  What is radical speech?  Basically, it's any discussion that runs contrary to the beliefs of the political left.

Open hatred of moderate or conservative ideals is perfectly acceptable, but don't ever shine a negative light on woke activism, or you might be a terrorist.

Riley Gaines has experienced this double standard first hand.  She was even assaulted and taken hostage at an event in 2023 at San Francisco State University when leftists protester tried to trap her in a room and demanded she "pay them to let her go."  Campus police allegedly witnessed the incident but charges were never filed and surveillance footage from the college was never released.  

It's probably the last thing a champion female swimmer ever expects, but her head-on collision with the trans movement and the institutional conspiracy to push it on the public forced her to become a counter-culture voice of reason rather than just an athlete.

For years the independent media argued that no matter how much we expose the insanity of men posing as women to compete and dominate women's sports, nothing will really change until the real female athletes speak up and fight back.  Riley Gaines and those like her represent that necessary rebellion and a desperately needed return to common sense and reason.

In a recent interview on the Joe Rogan Podcast, Gaines related some interesting information on the inner workings of the NCAA and the subversive schemes surrounding trans athletes.  Not only were women participants essentially strong-armed by colleges and officials into quietly going along with the program, there was also a concerted propaganda effort.  Competition ceremonies were rigged as vehicles for promoting trans athletes over everyone else. 

The bottom line?  The competitions didn't matter.  The real women and their achievements didn't matter.  The only thing that mattered to officials were the photo ops; dudes pretending to be chicks posing with awards for the gushing corporate media.  The agenda took precedence.

Lia Thomas, formerly known as William Thomas, was more than an activist invading female sports, he was also apparently a science project fostered and protected by the athletic establishment.  It's important to understand that the political left does not care about female athletes.  They do not care about women's sports.  They don't care about the integrity of the environments they co-opt.  Their only goal is to identify viable platforms with social impact and take control of them.  Women's sports are seen as a vehicle for public indoctrination, nothing more.

The reasons why they covet women's sports are varied, but a primary motive is the desire to assert the fallacy that men and women are "the same" psychologically as well as physically.  They want the deconstruction of biological sex and identity as nothing more than "social constructs" subject to personal preference.  If they can destroy what it means to be a man or a woman, they can destroy the very foundations of relationships, families and even procreation.  

For now it seems as though the trans agenda is hitting a wall with much of the public aware of it and less afraid to criticize it.  Social media companies might be able to silence some people, but they can't silence everyone.  However, there is still a significant threat as the movement continues to target children through the public education system and women's sports are not out of the woods yet.   

The ultimate solution is for women athletes around the world to organize and widely refuse to participate in any competitions in which biological men are allowed.  The only way to save women's sports is for women to be willing to end them, at least until institutions that put doctrine ahead of logic are made irrelevant.          

Tyler Durden Wed, 03/13/2024 - 17:20

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Congress’ failure so far to deliver on promise of tens of billions in new research spending threatens America’s long-term economic competitiveness

A deal that avoided a shutdown also slashed spending for the National Science Foundation, putting it billions below a congressional target intended to…



Science is again on the chopping block on Capitol Hill. AP Photo/Sait Serkan Gurbuz

Federal spending on fundamental scientific research is pivotal to America’s long-term economic competitiveness and growth. But less than two years after agreeing the U.S. needed to invest tens of billions of dollars more in basic research than it had been, Congress is already seriously scaling back its plans.

A package of funding bills recently passed by Congress and signed by President Joe Biden on March 9, 2024, cuts the current fiscal year budget for the National Science Foundation, America’s premier basic science research agency, by over 8% relative to last year. That puts the NSF’s current allocation US$6.6 billion below targets Congress set in 2022.

And the president’s budget blueprint for the next fiscal year, released on March 11, doesn’t look much better. Even assuming his request for the NSF is fully funded, it would still, based on my calculations, leave the agency a total of $15 billion behind the plan Congress laid out to help the U.S. keep up with countries such as China that are rapidly increasing their science budgets.

I am a sociologist who studies how research universities contribute to the public good. I’m also the executive director of the Institute for Research on Innovation and Science, a national university consortium whose members share data that helps us understand, explain and work to amplify those benefits.

Our data shows how underfunding basic research, especially in high-priority areas, poses a real threat to the United States’ role as a leader in critical technology areas, forestalls innovation and makes it harder to recruit the skilled workers that high-tech companies need to succeed.

A promised investment

Less than two years ago, in August 2022, university researchers like me had reason to celebrate.

Congress had just passed the bipartisan CHIPS and Science Act. The science part of the law promised one of the biggest federal investments in the National Science Foundation in its 74-year history.

The CHIPS act authorized US$81 billion for the agency, promised to double its budget by 2027 and directed it to “address societal, national, and geostrategic challenges for the benefit of all Americans” by investing in research.

But there was one very big snag. The money still has to be appropriated by Congress every year. Lawmakers haven’t been good at doing that recently. As lawmakers struggle to keep the lights on, fundamental research is quickly becoming a casualty of political dysfunction.

Research’s critical impact

That’s bad because fundamental research matters in more ways than you might expect.

For instance, the basic discoveries that made the COVID-19 vaccine possible stretch back to the early 1960s. Such research investments contribute to the health, wealth and well-being of society, support jobs and regional economies and are vital to the U.S. economy and national security.

Lagging research investment will hurt U.S. leadership in critical technologies such as artificial intelligence, advanced communications, clean energy and biotechnology. Less support means less new research work gets done, fewer new researchers are trained and important new discoveries are made elsewhere.

But disrupting federal research funding also directly affects people’s jobs, lives and the economy.

Businesses nationwide thrive by selling the goods and services – everything from pipettes and biological specimens to notebooks and plane tickets – that are necessary for research. Those vendors include high-tech startups, manufacturers, contractors and even Main Street businesses like your local hardware store. They employ your neighbors and friends and contribute to the economic health of your hometown and the nation.

Nearly a third of the $10 billion in federal research funds that 26 of the universities in our consortium used in 2022 directly supported U.S. employers, including:

  • A Detroit welding shop that sells gases many labs use in experiments funded by the National Institutes of Health, National Science Foundation, Department of Defense and Department of Energy.

  • A Dallas-based construction company that is building an advanced vaccine and drug development facility paid for by the Department of Health and Human Services.

  • More than a dozen Utah businesses, including surveyors, engineers and construction and trucking companies, working on a Department of Energy project to develop breakthroughs in geothermal energy.

When Congress shortchanges basic research, it also damages businesses like these and people you might not usually associate with academic science and engineering. Construction and manufacturing companies earn more than $2 billion each year from federally funded research done by our consortium’s members.

A lag or cut in federal research funding would harm U.S. competitiveness in critical advanced technologies such as artificial intelligence and robotics. Hispanolistic/E+ via Getty Images

Jobs and innovation

Disrupting or decreasing research funding also slows the flow of STEM – science, technology, engineering and math – talent from universities to American businesses. Highly trained people are essential to corporate innovation and to U.S. leadership in key fields, such as AI, where companies depend on hiring to secure research expertise.

In 2022, federal research grants paid wages for about 122,500 people at universities that shared data with my institute. More than half of them were students or trainees. Our data shows that they go on to many types of jobs but are particularly important for leading tech companies such as Google, Amazon, Apple, Facebook and Intel.

That same data lets me estimate that over 300,000 people who worked at U.S. universities in 2022 were paid by federal research funds. Threats to federal research investments put academic jobs at risk. They also hurt private sector innovation because even the most successful companies need to hire people with expert research skills. Most people learn those skills by working on university research projects, and most of those projects are federally funded.

High stakes

If Congress doesn’t move to fund fundamental science research to meet CHIPS and Science Act targets – and make up for the $11.6 billion it’s already behind schedule – the long-term consequences for American competitiveness could be serious.

Over time, companies would see fewer skilled job candidates, and academic and corporate researchers would produce fewer discoveries. Fewer high-tech startups would mean slower economic growth. America would become less competitive in the age of AI. This would turn one of the fears that led lawmakers to pass the CHIPS and Science Act into a reality.

Ultimately, it’s up to lawmakers to decide whether to fulfill their promise to invest more in the research that supports jobs across the economy and in American innovation, competitiveness and economic growth. So far, that promise is looking pretty fragile.

This is an updated version of an article originally published on Jan. 16, 2024.

Jason Owen-Smith receives research support from the National Science Foundation, the National Institutes of Health, the Alfred P. Sloan Foundation and Wellcome Leap.

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What’s Driving Industrial Development in the Southwest U.S.

The post-COVID-19 pandemic pipeline, supply imbalances, investment and construction challenges: these are just a few of the topics address by a powerhouse…



The post-COVID-19 pandemic pipeline, supply imbalances, investment and construction challenges: these are just a few of the topics address by a powerhouse panel of executives in industrial real estate this week at NAIOP’s I.CON West in Long Beach, California. Led by Dawn McCombs, principal and Denver lead industrial specialist for Avison Young, the panel tackled some of the biggest issues facing the sector in the Western U.S. 

Starting with the pandemic in 2020 and continuing through 2022, McCombs said, the industrial sector experienced a huge surge in demand, resulting in historic vacancies, rent growth and record deliveries. Operating fundamentals began to normalize in 2023 and construction starts declined, certainly impacting vacancy and absorption moving forward.  

“Development starts dropped by 65% year-over-year across the U.S. last year. In Q4, we were down 25% from pre-COVID norms,” began Megan Creecy-Herman, president, U.S. West Region, Prologis, noting that all of that is setting us up to see an improvement of fundamentals in the market. “U.S. vacancy ended 2023 at about 5%, which is very healthy.” 

Vacancies are expected to grow in Q1 and Q2, peaking mid-year at around 7%. Creecy-Herman expects to see an increase in absorption as customers begin to have confidence in the economy, and everyone gets some certainty on what the Fed does with interest rates. 

“It’s an interesting dynamic to see such a great increase in rents, which have almost doubled in some markets,” said Reon Roski, CEO, Majestic Realty Co. “It’s healthy to see a slowing down… before [rents] go back up.” 

Pre-pandemic, a lot of markets were used to 4-5% vacancy, said Brooke Birtcher Gustafson, fifth-generation president of Birtcher Development. “Everyone was a little tepid about where things are headed with a mediocre outlook for 2024, but much of this is normalizing in the Southwest markets.”  

McCombs asked the panel where their companies found themselves in the construction pipeline when the Fed raised rates in 2022.   

In Salt Lake City, said Angela Eldredge, chief operations officer at Price Real Estate, there is a typical 12-18-month lead time on construction materials. “As rates started to rise in 2022, lots of permits had already been pulled and construction starts were beginning, so those project deliveries were in fall 2023. [The slowdown] was good for our market because it kept rates high, vacancies lower and helped normalize the market to a healthy pace.” 

A supply imbalance can stress any market, and Gustafson joked that the current imbalance reminded her of a favorite quote from the movie Super Troopers: “Desperation is a stinky cologne.” “We’re all still a little crazed where this imbalance has put us, but for the patient investor and owner, there will be a rebalancing and opportunity for the good quality real estate to pass the sniff test,” she said.  

At Bircher, Gustafson said that mid-pandemic, there were predictions that one billion square feet of new product would be required to meet tenant demand, e-commerce growth and safety stock. That transition opened a great opportunity for investors to run at the goal. “In California, the entitlement process is lengthy, around 24-36 months to get from the start of an acquisition to the completion of a building,” she said. Fast forward to 2023-2024, a lot of what is being delivered in 2024 is the result of that chase.  

“Being an optimistic developer, there is good news. The supply imbalance helped normalize what was an unsustainable surge in rents and land values,” she said. “It allowed corporate heads of real estate to proactively evaluate growth opportunities, opened the door for contrarian investors to land bank as values drop, and provided tenants with options as there is more product. Investment goals and strategies have shifted, and that’s created opportunity for buyers.” 

“Developers only know how to run and develop as much as we can,” said Roski. “There are certain times in cycles that we are forced to slow down, which is a good thing. In the last few years, Majestic has delivered 12-14 million square feet, and this year we are developing 6-8 million square feet. It’s all part of the cycle.”  

Creecy-Herman noted that compared to the other asset classes and opportunities out there, including office and multifamily, industrial remains much more attractive for investment. “That was absolutely one of the things that underpinned the amount of investment we saw in a relatively short time period,” she said.  

Market rent growth across Los Angeles, Inland Empire and Orange County moved up more than 100% in a 24-month period. That created opportunities for landlords to flexible as they’re filling up their buildings. “Normalizing can be uncomfortable especially after that kind of historic high, but at the same time it’s setting us up for strong years ahead,” she said. 

Issues that owners and landlords are facing with not as much movement in the market is driving a change in strategy, noted Gustafson. “Comps are all over the place,” she said. “You have to dive deep into every single deal that is done to understand it and how investment strategies are changing.” 

Tenants experienced a variety of challenges in the pandemic years, from supply chain to labor shortages on the negative side, to increased demand for products on the positive, McCombs noted.  

“Prologis has about 6,700 customers around the world, from small to large, and the universal lesson [from the pandemic] is taking a more conservative posture on inventories,” Creecy-Herman said. “Customers are beefing up inventories, and that conservatism in the supply chain is a lesson learned that’s going to stick with us for a long time.” She noted that the company has plenty of clients who want to take more space but are waiting on more certainty from the broader economy.  

“E-commerce grew by 8% last year, and we think that’s going to accelerate to 10% this year. This is still less than 25% of all retail sales, so the acceleration we’re going to see in e-commerce… is going to drive the business forward for a long time,” she said. 

Roski noted that customers continually re-evaluate their warehouse locations, expanding during the pandemic and now consolidating but staying within one delivery day of vast consumer bases.  

“This is a generational change,” said Creecy-Herman. “Millions of young consumers have one-day delivery as a baseline for their shopping experience. Think of what this means for our business long term to help our customers meet these expectations.” 

McCombs asked the panelists what kind of leasing activity they are experiencing as a return to normalcy is expected in 2024. 

“During the pandemic, shifts in the ports and supply chain created a build up along the Mexican border,” said Roski, noting border towns’ importance to increased manufacturing in Mexico. A shift of populations out of California and into Arizona, Nevada, Texas and Florida have resulted in an expansion of warehouses in those markets. 

Eldridge said that Salt Lake City’s “sweet spot” is 100-200 million square feet, noting that the market is best described as a mid-box distribution hub that is close to California and Midwest markets. “Our location opens up the entire U.S. to our market, and it’s continuing to grow,” she said.   

The recent supply chain and West Coast port clogs prompted significant investment in nearshoring and port improvements. “Ports are always changing,” said Roski, listing a looming strike at East Coast ports, challenges with pirates in the Suez Canal, and water issues in the Panama Canal. “Companies used to fix on one port and that’s where they’d bring in their imports, but now see they need to be [bring product] in a couple of places.” 

“Laredo, [Texas,] is one of the largest ports in the U.S., and there’s no water. It’s trucks coming across the border. Companies have learned to be nimble and not focused on one area,” she said. 

“All of the markets in the southwest are becoming more interconnected and interdependent than they were previously,” Creecy-Herman said. “In Southern California, there are 10 markets within 500 miles with over 25 million consumers who spend, on average, 10% more than typical U.S. consumers.” Combined with the port complex, those fundamentals aren’t changing. Creecy-Herman noted that it’s less of a California exodus than it is a complementary strategy where customers are taking space in other markets as they grow. In the last 10 years, she noted there has been significant maturation of markets such as Las Vegas and Phoenix. As they’ve become more diversified, customers want to have a presence there. 

In the last decade, Gustafson said, the consumer base has shifted. Tenants continue to change strategies to adapt, such as hub-and-spoke approaches.  From an investment perspective, she said that strategies change weekly in response to market dynamics that are unprecedented.  

McCombs said that construction challenges and utility constraints have been compounded by increased demand for water and power. 

“Those are big issues from the beginning when we’re deciding on whether to buy the dirt, and another decision during construction,” Roski said. “In some markets, we order transformers more than a year before they are needed. Otherwise, the time comes [to use them] and we can’t get them. It’s a new dynamic of how leases are structured because it’s something that’s out of our control.” She noted that it’s becoming a bigger issue with electrification of cars, trucks and real estate, and the U.S. power grid is not prepared to handle it.  

Salt Lake City’s land constraints play a role in site selection, said Eldridge. “Land values of areas near water are skyrocketing.” 

The panelists agreed that a favorable outlook is ahead for 2024, and today’s rebalancing will drive a healthy industry in the future as demand and rates return to normalized levels, creating opportunities for investors, developers and tenants.  

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