Weekend Interview: Colliers National Industrial Director Stephanie Rodriguez On The Shifting Market, Amazon And What To Watch In 2024

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Stephanie Rodriguez doesn’t see the U.S. industrial market retreating so much as stabilizing. 

As the national director for industrial services at Colliers, Rodriguez has been closely watching the sector shift away from a pandemic-era flurry of activity from her Miami office, as leasing activity has slowed but remains in line with the years before supply chain concerns spurred a wave of deals.

Efforts to bring operations back to the U.S., rising demand for data centers, responses to migration trends and government initiatives continue to bolster the market, Rodriguez said.  

Vacancy is slowly rising, hitting just above 5% at the end of the third quarter, according to Colliers, but a decline in construction starts has mollified any fears of oversupply, Rodriguez said. 

She expects rents to continue rising — although the days of double-digit rent growth have passed — even as the 47.8M SF of net absorption in the third quarter fell 63% from the same period last year. 

In an interview with Bisnow, Rodriguez discussed where the U.S. industrial sector is headed, what’s driving leasing activity and what a shift in policy at the Federal Reserve could mean for development in the year ahead. 

This interview has been edited for length and clarity.

Bisnow: This year saw a bit of a reset in the industrial market, with construction, leasing and rent growth all slowing down from pandemic highs. Where do you think the U.S. industrial market broadly stands today?

Rodriguez: I think that we're still in a really good position. The numbers that we are recording for 2023 are still very much on par with 2018 and 2019, pre-pandemic years, which were fantastic years when it came to the industrial sector. But it certainly has slowed. 

From the supply side, we've seen a major uptick in deliveries. This year alone, roughly 630M SF is being delivered across the U.S., and the reflection of that delivery is the uptick we're seeing in vacancy rates. Nationally, we're roughly 5.5% vacant as of the third quarter. We anticipate that will increase as we end this year and go into the beginning of next year. 

That said, when we look at vacancy rates across the U.S., anything below 8% vacancy is an indicator that we still need supply in the market. Everybody gets a little freaked out when we keep seeing those numbers climb every quarter, but we're still in a very good spot. 

Rental rates are still climbing, but they are slowing a little bit. We're not seeing those drastic rental rate increases that we were seeing for the past couple of years. It's really more of a stabilization at this point. But we’re still predicting single-digit rent rate growth across the U.S. for this coming year. 

Bisnow: Colliers’ third-quarter report noted that construction starts have plummeted. How much of that is driven by the interest rate environment versus supply-demand dynamics, or are there other factors in play?

Rodriguez: Supply and demand has been in really great balance, so I don't think that's a key driver. This sort of general sense of economic uncertainty is making developers take a little more pause than usual. 

If you're as old as I am and you've been through the Great Financial Crisis, where we were very overbuilt and there was a lot of vacancy, it was a very challenging time, and real estate professionals who lived through that moment keep that at the top of their minds at all times. 

The economic uncertainty, there is a slowdown in deal velocity when it comes to leasing. Tenants are being much more analytical before they're taking the leap and leasing space. Developers are taking those cues and saying, “Let's carefully look at what's coming online in this market, what deals are still out in the market,” because they don't want to develop and not start cash flowing their investment.

But interest rates are also a big driving force. Until we start to see those stabilizing and coming down a little bit, people will still be less likely to pull the trigger on new starts.

Bisnow: Let's say the Fed decides to cut rates early next year. Does that spur another wave of development, or is there still uncertainty in the economy that is holding back new construction?

Rodriguez: It could be a little bit of both. It really depends on the market. Where there is still very low vacancy and still a number of opportunities to lease space, developers will be more inclined to move forward with projects.

We are seeing a lot of landowners marketing sites as build-to-suit opportunities where they were originally acquired for speculative development, and they will go forward with those opportunities if they're there. 

Bisnow: Amazon had been snapping up space during the pandemic, and then it announced a significant pullback, but two Amazon deals were among the largest move-ins nationally in Colliers’ third-quarter report. What's Amazon's role in the marketplace today, and is it different now than it was a year ago?

Rodriguez: They're just being a little more data-driven now that they’ve had a moment to catch their breath. They were taking down so much space because it was fueled by the pandemic. Now business has stabilized and they're evaluating and still adding space where it makes the most sense.

Their third-quarter report shows they’re more profitable again, and that is because they are being more disciplined when it comes to their real estate decisions. They still have a place in the market, but they're not leading the charge in every market anymore.

Bisnow: The Biden administration recently announced new measures that are aimed at strengthening U.S. supply chains. Are those initiatives going to have any impact on what's happening in the industrial sector?

Rodriguez: We've already seen some positive impacts to the industrial sector because of some of the legislation that his administration passed earlier on related to green energy, onshoring, nearshoring, things like that. A lot of solar panel and battery manufacturers have been setting up facilities across the U.S. A lot of older manufacturing facilities are now being leased in response to those initiatives. 

Anytime the government puts into place measures that will strengthen our supply chain, we usually see some benefit in the industrial sector. When it comes to the onshoring and nearshoring efforts, we've already seen that improving things. You've got a lot of — we'll call it “spray” — into the general industrial market. The suppliers who provide raw materials to those manufacturing businesses need to be in close proximity to those facilities, so we're seeing even more demand for space surrounding those manufacturing facilities.

Bisnow: I want to read you something Prologis CEO Hamid Moghadam said on an earnings call in October and get your perspective. 

He said, “The nightmare scenario would be that, you know, a couple of tankers get sunk in the Persian Gulf. … If we see that scenario, I can't think of a better business to want to be in. I hate to see that scenario happen, but actually, on a relative basis, it should be good for our business.”

What’s your thoughts on what he’s saying? Do you share his sense that geopolitical instability is, or could be, a demand driver for the industrial market?

Rodriguez: I think we're already seeing that. Look at the supply chain disruption that we experienced during the pandemic. Retailers in the U.S. couldn't sell goods because they didn't have access to the goods to sell, and then when they did start coming in on ships, they were stuck in ports. It's already something that's happened. 

It just depends on what the geopolitical unrest situation is, whether it's a global pandemic, whether it's war. It is a demand driver for saying, “Let's be less reliant, mitigate our risks and not have everything coming from one specific geographic region, because they may be our friend today, but they may not be our friend tomorrow.”

He's right in saying that nobody wants these bad things to happen, but sometimes they do result in some wins on our own shores.

Bisnow: Is automation and the rising interest in artificial intelligence having an impact on how new projects are developed or how tenants look for space? Is the technological shift we're seeing and prioritization of clean energy having an impact on the market?

Rodriguez: We have over the years seen demand from occupiers for buildings that are green — with LEED certification or certain ESG elements in the facilities — but now it's become more table stakes. It used to be a box to check. Now it's become a part of the operating platform for these occupiers.

In response to that, when the developers are building a project, a couple of key things that they're keeping in mind are: Is there sufficient power to the facility? As fleet vehicles are becoming electrified, they need to have ample power to charge their vehicles along with automated systems within the warehouse themselves. Solar is another big thing where you're starting to see a lot of solar on the roofs of warehouses. Some tenants demand it. Others see it as a phenomenal perk.

Development used to be very basic. It was a big concrete box with some truck courts, and that was it. Now there's a lot more sophistication that goes into the design. 

Bisnow: What are the market trends you’re watching in 2024, and can you give me a bold prediction for the year ahead?

Rodriguez: Refrigerated and freezer space is one thing that we are keenly focused on at Colliers. The average age of cold buildings in the U.S. is 36 years, so a lot of it is becoming functionally obsolete. There is going to be an increased demand for that, and we're starting to see speculative development in that space, which historically has not been the case. 

Data center demand is another one that will continue to ride the wave of this technology demand that we have in this country, and we're watching it in some of the markets where it historically hasn't been a huge component of that market. 

My bold prediction for 2024 is that we’re still going to have a solid year in the industrial sector. I think interest rates will stabilize — hopefully, they'll start coming down by midyear next year, assuming all the other indicators are amenable to the Fed — and then I think we're going to start seeing an uptick in investment sales again.

Bisnow: What is your favorite weekend routine or favorite weekend activity?

Rodriguez: I really enjoy spending time with my daughter and my niece, who's in college here in South Florida. That's really my favorite thing to do on weekends. That and a leisurely cup of coffee without an alarm clock.