🚛 10 small markets beating major industrial hubs

👋 Happy Sunday, Best Ever readers!

In today’s newsletter, industrial sleepers emerge, tenants unionize, utilities soar, a poker player’s guide to CRE, and much more.

Today's edition is presented by Aspen Funds. Access their UEF VII energy fund targeting 25-35% returns from cash-flowing oil and gas assets. Exclusive $50K discount on investment minimums for Best Ever readers only. Get the investor deck today.

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Let’s CRE!

🗞️ NO-FLUFF NEWS
CRE HEADLINES

🏘️ Tenants Unite: More than 1,000 tenants across Capital Realty Group's 22,000-unit affordable housing portfolio are organizing the first multi-state tenant union campaign, targeting maintenance issues like mold and pests while seeking collective bargaining rights with the major private equity landlord.

💰 Debt Record: CRE mortgage debt reached a record $4.88 trillion in Q2, rising $47.1 billion as life insurers led growth with $17.7 billion increases. Banks maintain dominance, holding 38% of outstanding debt at $1.8 trillion.

☕ Closed Brew: Starbucks will close over 430 U.S. stores and lay off 900 corporate employees as part of a $1 billion restructuring, reducing North American locations while renovating 1,000+ stores to improve customer experience amid declining sales and increased competition.

📊 Low Flow: CRE transactions above $50 million totaled 112 deals in August, down 5% from July's peak but 12% above YTD monthly averages. With 74% of tracked deals trading at gains, 26% sold at losses in a divergent market.

📦 State of Storage: Self-storage sales reached $755 million in Q2, with prices rising 19% YoY to $123 PSF. Investors targeted urban infill and high-growth suburbs while REITs paid a 40% premium over non-REITs for supply-constrained markets.

🏆 TOP STORY
MEET THE NEXT KINGS OF INDUSTRIAL

The U.S. industrial market is trying to find its footing after a wild ride of oversupply. After 15 straight years of positive demand, industrial absorption has cooled from the growth frenzy of 2021-2023, but the fundamentals suggest recovery is ahead.

With developers and occupiers trying to navigate shifting trade policies and interest rate uncertainty, emerging secondary markets are attracting fresh attention from investors seeking solid fundamentals without the premium pricing of saturated primary metros. A recent report from Colliers breaks down the top 10 emerging industrial markets, highlighting a geographically diverse set of markets with varying strengths and upsides.

• Boise, Idaho: Strategic logistics positioning along I-84 and proximity to major West Coast markets, fueled by Micron's multi-billion-dollar semiconductor expansion that's attracting suppliers and creating industrial demand.

• Albuquerque, New Mexico: Maintains the tightest vacancy rate at 3.3% among emerging markets, supported by over 57,000 federal workers across Kirtland Air Force Base and national laboratories generating unique R&D flex space demand.

• El Paso, Texas: Capitalizes on its strategic "Borderplex" location with accelerating nearshoring trends, multiple border crossings, and Foreign Trade Zone advantages driving logistics and manufacturing growth.

• Omaha, Nebraska: Offers unmatched distribution access with 90% of the U.S. population reachable within two days by truck, maintaining an ultra-tight 2.3% vacancy rate that's attracting national players.

• Dayton, Ohio: Benefits from automotive manufacturing revival and workforce development programs, with major projects including a 4M SF EV battery plant just outside the city.

• Huntsville, Alabama: Leverages Redstone Arsenal's 40,000+ defense workers and the incoming U.S. Space Command headquarters to drive specialized industrial demand in the fastest-growing city in Alabama.

• Treasure Coast, Florida: Serves as a cost-effective distribution hub between South and Central Florida markets, with 43% inventory growth over the past three years driven by population expansion and infrastructure investments.

• Savannah, Georgia: Leads all U.S. markets with 81% inventory growth over five years, driven by Port of Savannah expansion and Hyundai's $7.6 billion EV manufacturing campus attracting supplier facilities.

• Norfolk, Virginia: Combines military complex demand with Port of Virginia operations, including a $450 million channel deepening project that will create the deepest port on the U.S. East Coast.

• New Hampshire Markets: Provide a cost-effective alternative to Massachusetts for serving Greater Boston with 12.2% of total inventory currently under construction and strong demand for smaller industrial spaces.

While supply waves have pushed vacancy rates higher in several markets, absorption has generally kept pace with new development. Most emerging markets show strong net absorption ratios above 75%, indicating healthy demand fundamentals despite temporary supply-demand imbalances.

THE BOTTOM LINE

These emerging industrial markets offer compelling alternatives to saturated primary markets, combining strategic logistics positioning with cost advantages and specialized demand drivers. As the industrial sector stabilizes through 2025, investors should focus on markets with strong infrastructure investments, defense/government anchors, or unique supply chain advantages that provide sustainable competitive moats against larger metros.

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💰 CRE TRENDS
UTILITY WARS: ELECTRICITY IS GETTING EXPENSIVE

Electricity costs have surged 31% over the past four years — significantly outpacing the 19% overall inflation rate — driven by data center demand, aging grid upgrades, and coal plant replacements. This surge is triggering unprecedented political backlash against utility profits. 

• Indiana's governor recently appointed a commissioner specifically to evaluate utility returns and force investors to "bear more of the cost of doing business." 

• New York and Rhode Island have proposed capping utility returns at just 4%, compared to the historical 10% average. 

• Similar political pressure is emerging across multiple states, with gubernatorial candidates making utility bills central campaign issues.

What it Means for CRE: Properties with high energy consumption — particularly data centers, industrial facilities, and older office buildings — face mounting operational cost pressures that could compress NOI. Additionally, utility stocks, often viewed as defensive real estate proxies, may see compressed returns as regulators bow to political pressure. The allowed return on equity, which makes up 15-20% of customer bills, represents an easy target for politicians seeking quick relief.

The situation appears structural rather than cyclical. The Edison Electric Institute projects over $1 trillion in grid investments through 2029 — double the previous decade's spending pace. With AI driving unprecedented power demand and critical infrastructure upgrades unavoidable, electricity costs seem destined to rise further, creating potential ripple effects across energy-intensive CRE assets.

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🎙️ THE BEST EVER CRE SHOW
KNOW WHEN TO HOLD ’EM, KNOW WHEN TO FOLD ’EM

J Scott is somewhat of a legend in real estate circles. Part of his lore is that he’s also a poker aficionado who played at a professional level. This week, on the Best Ever CRE Show, he joined Matt Faircloth for a fireside chat in which he outlined how poker strategy translates directly to CRE investing, offering frameworks that apply whether you're approaching a cash game or looking for your next deal. 

♣️ Game Selection: Choose asset classes and markets where you possess competitive advantages over other investors, ensuring you're playing in spaces where your expertise, capital, or network creates an edge.

♥️ Math First: Deal underwriting and probability calculations must precede psychological tactics like reading opponents or negotiating based on tells. "The fundamentals are the math," Scott says. "The fundamentals are being able to analyze a deal or a hand, ensure that it's a winning investment before you worry about the more esoteric stuff like the psychology."

♠️ Disciplined Folding: According to Scott, professional poker players fold 70-90% of their hands. "In investing," he says, "it's the same exact thing. You need to be able to walk away from most potential deals." This is essential, he says, because the reality is that 99% of opportunities won't be profitable.

♦️ Cut Losses: Early exits prevent compounding damage. "Good poker players are willing to do the thing that loses them money now to avoid losing more money later," Scott says. Chasing unlikely outcomes, he reiterates, typically makes losses worse.

🃏 Strategic Bluffing: Negotiation tactics require careful timing and backup plans, much like poker bluffs work best when used sparingly and with potential "outs" if called.

 “In poker, the term fish means people who are inexperienced, the people that you can likely beat,” Scott says. “If you don't recognize the fish at the table, it's probably you."

🎙️ Listen to J Scott's full interview here.

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