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Should You Start Brokerage Right Out of College? · Industrial Advisors

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  A lot of people were talking about Thrive in 25 last year, and we've
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  been hit by a lot of uncertainty.
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  We've been hit by a lot of question marks, and I don't see that
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  uncertainty stopping anytime soon.
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  But I think what we're doing is we're building a little bit of pent
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  up demand, and once we see a little clarity in the economy and a little
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  clarity in where things are headed.
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  I think we'll see that pent up demand release, and we'll
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  see some really strong growth.
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  All right.
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  Welcome to our Industrial Advisors podcast.
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  You have Bill Conn and Matt McGregor and uh, we have joining us today.
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  Craig, her, who's our National Director of in Industrial Research, and Craig's
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  been on our podcast a couple times before.
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  Always does a great job.
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  And, um, given that we're halfway through 2025, we thought we'd
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  have you on and, and talk to you a little bit about what's going on
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  nationally, first half of the year.
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  Obviously there's, there's a lot going on, so maybe we can start with that.
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  Craig, just give us a overview of, you know, big topics
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  over the first half of 2025.
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  Yeah, thanks for having me, guys.
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  I'm always happy to join.
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  It's great to be on this podcast.
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  Uh, we don't have all of the data in Q2 yet, but it's looking like the
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  indicators that I track nationally, they'll likely play out much like they
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  did for the first quarter of 2025.
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  So tenant demand, which we measure by net absorption or the net change in
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  occupancy from one period to the next.
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  It totaled about 35 million square feet in the first quarter of 25.
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  And while figure may drop off in Q2.
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  It will be the 60th, consecutive quarter That net absorption has been positive in
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  the us so that's 15 years of occupancy gains going all the way back to 2010.
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  So really it's been in up industrial market for quite a long time now.
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  One matter of concern that I wanted to bring up is that move outs are
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  up, especially in smaller spaces.
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  Looking at the preliminary data for the first half of 2025.
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  Many markets are reporting negative net absorption, particularly in
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  spaces and buildings below about a hundred thousand square feet.
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  Now that's just kind of in new development, so that will have to be
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  monitored to see if it's a real trend or if it's just a momentary blip.
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  So vacancy will increase for the 12th quarter in a row, it's been climbing from
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  a lobe about 3.5% in the middle of 2022.
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  To now it's over 7%.
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  The good news is that it has been climbing more and more slowly
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  over the past several quarters.
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  Strong speculative new supply was pushing vacancy up over 50 basis points in 2023.
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  But that construction pipeline has dropped by over 60% since then to
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  levels that are actually below pre pandemic construction figure and
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  vacancy is nearing its cyclical peak.
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  So when you actually break that vacancy rate down by building size.
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  It's the highest, it's over 10% in buildings, over 200,000 square feet.
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  But that's really because that's largely what was being built during this recent
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  development boom, that we're now coming to the end of moving on to rent growth.
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  Rent growth is stabilized.
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  Um, before you move on to that, I'm curious, uh, 'cause uh, on the West Coast
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  at least we, there's a lot of problems around that 200,000 foot size range.
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  So I'm curious if you have the statistic, or, or maybe just off the
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  top of your head, how does that change when you get up above 500,000 feet?
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  So that size range is actually pretty interesting because when you pull out
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  buildings 500,000 square feet and above, really your mega size buildings, that
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  vacancy rate peaked actually about a year ago at about just over 12% nationally.
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  Mm-hmm.
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  And it's fallen off since, because developers aren't building those
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  really, you know, big bombers anymore.
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  And there's been some leasing volume in that size range, and it's
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  dropped to about 10.2% since then.
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  Interesting.
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  Tell us like overall, what are the markets that are in trouble?
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  I think last we spoke, you know, Dallas and Phoenix came to mind
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  on, on cities that were in trouble.
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  So what are the soft spots?
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  What are the hot spots in the country?
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  Yeah, so I like to look at year long trends, or year and a half long
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  trends to, to really kind of make that comparison because, you know, looking at
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  quarter over quarter trends, there can be some bouncing around a little bit.
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  When you really look at the grand scheme of things, US industrial
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  markets have bifurcated a little bit.
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  Some markets are stabilizing, particularly in the Midwest, while
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  vacancy has climbed into the double digits and others due to supply side
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  pressure and a pullback in demand.
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  Demand has actually exceeded new supply in several markets over the
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  past year pushing vacancy down.
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  These markets include Chicago, Kansas City, Omaha, salt Lake City, and Savannah.
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  Now in others, the balance between supply and demand is still off.
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  Net absorption has been negative over the past year in these markets, while
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  new supply continues to deliver.
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  Examples of these markets include Charleston, Memphis, the Bay
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  Area, Sacramento, Portland, Oregon, and Reno Sparks.
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  And you'll notice a lot of those are actually on the West Coast, but even
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  in these markets that are a little bit softer, you know, new supply
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  is falling off and that equilibrium between supply and demand is returning.
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  Vacancy is approaching its cyclical peak when you go to
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  those major markets that are soft.
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  If you have the list there, were off the top of your head, what are some of the
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  major cities in vacancy trouble like and what percentage are we talking about?
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  I think last time we talked by memory, and I could be wrong,
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  but Dallas and Phoenix were like.
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  Double digit and growing.
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  So I'm just curious kinda where we're at, uh, from the major
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  city perspective, not secondary.
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  So I published a report that we call the Markets That Move America, that looks at
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  the 25 largest UN s industrial market.
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  Kind of compares it to, you know, the overall US industrial market
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  and then the other markets that aren't considered the top 25.
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  So when you really splice out those 25 largest US industrial markets.
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  Vacancies highest in Phoenix at about 13.2%.
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  Indianapolis, at about 11%.
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  Memphis at about nine four.
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  Dallas is up there above 9%.
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  Then you have Atlanta at about 8.8%, and those are all Q1 numbers.
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  You just don't have finalized Q2 numbers yet.
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  Um, but those are all, you know, pretty well above that US average about 7.1%.
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  Yeah, Dallas has improved.
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  Actually Dallas has improved.
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  Dallas has seen.
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  Things kind of stabilize a little.
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  Um, we've seen a little bit of demand come back and ob and at one
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  point we were, you know, Dallas was building over 65 million square feet.
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  Crazy.
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  Um, and most of that was being built on spec, and now that's dropped off,
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  you know, about a 70% from its peak.
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  So Craig, you talked about the highest vacancies.
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  What are, what are some of the tightest markets and, uh, you know, maybe the top
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  five in the us uh, on lowest vacancy.
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  So again, looking at that top 25 markets, the 25 largest US industrial markets
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  vacancy is well below the US average in several, particularly in the Midwest.
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  It's lowest in Cleveland at 3.1%.
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  Minneapolis at four three.
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  Detroit at four seven, Chicago at four eight.
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  Wow.
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  St. Louis at four eight.
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  So each of those top five markets in terms of lowest vacancy rates,
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  they're all in the Midwest.
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  That's crazy and Chicago really surprises me, uh, being that tight Chicago peaked
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  at just around 5% a few quarters ago.
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  Um, luckily their, their construction pipeline has fallen off significantly
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  and they've actually seen a pickup in leasing volume and, and, uh, demand.
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  I think for the second quarter.
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  Chicago's reporting about 5.1 million square feet of net absorption.
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  Um, and they saw a lot of big leases signed in Q2.
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  How about subleases?
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  You know, for a while there we saw just a huge increase in subleases hitting
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  the market, which can be problematic for landlords trying to lease their space now
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  having to compete with, with subleases.
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  Are you seeing any sort of trends, uh, is that slowing down at all or are we
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  seeing more subleases hit the market?
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  So that's one metric that I follow because it's one of the first to flip.
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  That is a signal that the market.
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  Is moving on to its next stage in the cycle.
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  There was hope about a year ago that we had seen sublease
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  availability peak nationwide.
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  We saw it kind of come down, I think it was the, the first into the second
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  quarter of 2024, and I was hopeful that that trend would continue.
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  But then we saw a number of larger subleases hit the market, particularly
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  Home Depot put a number of buildings nationwide on the market for
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  sublease, and we saw that sublease availability increase once again.
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  Now it's still elevated, but it's no longer climbing like it was.
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  It's just kind of hanging out at an elevated level.
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  Hopefully that starts to come off in the next few quarters, and again, that'll
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  be a signal that we're starting to see that shift that we're all hoping for
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  going into the end of 25 and into 26.
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  Going back real quick, by the way, subleasing it, it seems like every
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  single day in our Seattle market, there's two or three new subleases coming out.
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  Yeah.
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  It just continues to go bonkers.
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  Okay, so hopefully that's interesting.
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  It really is.
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  I mean, yeah, we have, are you seeing, are you seeing some come off market too, or
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  like some Barely, because, yeah, the issue with subleasing, as I've said in the past,
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  is the companies that normally absorb subleases are three pls because they have
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  a contractor, they have overflow, right?
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  So they're usually seeking shorter term space and you know, for overflow.
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  But in this market.
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  It's the three pls that are the culprit or that are giving them back.
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  So it's a double-edged sword, right?
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  Not only do you not have the three pls to pick up that space,
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  three pls are contributing to it.
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  So it's building quite rapidly and, and to the point where I think it was
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  about two and a half years ago when we started really tracking the changes
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  and there was about 600,000 feet of subleasing when we started tracking it.
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  There's about 6 million feet now.
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  That's a big change, right?
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  That's a big change.
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  Yeah.
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  So, uh, I'm sure some are being picked up, but the, you know,
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  it's being outpaced by a massive supply of it coming online, right.
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  Like I said, it's, it's, it's still elevated.
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  It hasn't come down from its peak in many markets.
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  It's still climbing, but it's just not, at least compared to your anecdote
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  about your market, I'm not seeing it as many markets climbing at that pace.
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  You're seeing out your way.
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  Well, Craig, let's talk about the biggest industry changes,
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  uh, that we're seeing from an absorption standpoint across the us.
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  What, what industries are growing?
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  So, I mean, the past several years, it's been pretty consistent.
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  Third party logistics providers, trucking and transportation companies
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  have represented more or less about one third of the bulk occupiers, which are a
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  hundred thousand square feet and above.
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  And that was consistent for 2024 and so far as consistent in
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  2025 it, it's interesting if you actually split that group out.
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  So split out all the three PL providers, the trucking and transportation companies,
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  and you look at where they're coming from in 2024 and through the first
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  quarter of 2025, about 27% of those three PL companies were Asian based.
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  That's a big change and a big trend that we hadn't seen before.
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  Um, and that's nationwide looking at bulk occupancies of up a hundred
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  thousand square feet in some markets like Philadelphia, Savannah, greater
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  LA Atlanta, that's above 40% of the three PL occupancies that are
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  taking place are Asian based three pls, which is really a notable trend
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  following three PL providers, you have manufacturing representing
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  about 14% of the bulk occupancies.
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  General retail and wholesale at about 12% food, beverage, and pet supply.
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  And then much smaller segment is e-commerce at about 5.3%.
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  You know, Amazon, we did see a push in 2024, but it wasn't like the push
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  that they did in 2020 and 2021 when e-commerce represented, you know, about
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  15, 20% of the new occupancies that were.
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  Occurring nationwide.
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  Well, this has been really good information.
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  Last item.
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  So any other trends that you wanna touch on or predictions that you
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  see for the remainder of, of 2025?
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  So the construction activity continues its downward trend, and
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  that's great news for the market, especially as demand has dropped off.
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  Now demand remains positive, um, but you wanna see your construction pipeline
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  and your new supply figures fall off.
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  In a market where demand is a little bit lower than you know, the averages
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  that we saw prior to the pandemic manufacturing construction spending has
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  actually surged over the last few years.
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  It's up about 212% since 2020, but it's leveled off in the past year.
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  Now, warehouse construction spending, especially from the private
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  sector, it peaked in 2023 as we all experienced, but it's since
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  normalized to pre pandemic levels.
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  Now the big number that stands out is Data Center Construction.
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  Data Center construction spending has just continued to accelerate.
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  It's up 32% year over year, and it's up a whopping 300% since 2020.
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  I wanna reiterate, this is not a down industrial market, it's a segmented one.
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  The coming year will be marked by recalibration instead of the
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  rapid growth that we experienced in 20 21, 20 22, and 2023.
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  The markets that are stabilizing or even starting to where vacancy's
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  starting to fall back, back off again, they'll lead the next upcycle.
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  While those where vacancies well into the double digits and new supply
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  continues to be a bit of a concern, although it's likely falling off, those
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  markets will face a slower recovery.
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  So it's a segmented industrial market.
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  Some markets are, you know, ahead of the game and some markets have a ways to go.
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  But I do anticipate by the end of the year that vacancy will peak right around 7.5%.
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  We'll see that equilibrium, that balance between supply and demand return, and
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  we'll see, you know, we'll be slowly moving towards that next growth cycle.
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  Now, a lot of people we're talking about Thrive in 25 last year, and
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  we've been hit by a lot of uncertainty.
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  We've been hit by a lot of question marks.
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  I don't see that uncertainty stopping anytime soon, but I think what we're doing
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  is we're building a little bit of pent up demand, and once we see a little clarity
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  in the economy and a little clarity.
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  Where things are headed.
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  I think we'll see that pent up demand release and we'll
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  see some really strong growth.
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  Excellent.
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  Well, excellent information as always.
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  It'll be a very interesting, uh, second half to the year and, uh,
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  great intel on the first half.
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  So thank you for, for sharing your insights on that, Craig.
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  Appreciate it.
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  Hey guys, thanks for having me.
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  I really appreciate it.
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  Great to see you.
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  Appreciate you.
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  All right guys.