February 14 2023 0Comment

2023 Economic Outlook from Our CEO

Let’s Wait and See in ’23!

– Paul D. Little, CEO

Alston experienced another year of growth in 2022. While our revenue was not as strong as we had predicted, the Bottomline results were solid. Perhaps more importantly, we opened new offices in Greenville, SC and Napa, CA. Last year we opened new offices in Boise, ID and Alexandria, VA. These new offices are strategic in terms of both core markets and represent our growing diversification of projects and clients. In 2023, we entered the year with record backlog, and a host of new projects in virtually every geographic market. We remain optimistic for our future growth.

While our outlook for this year is positive, we have certainly seen many of our clients and friends express the “Let’s wait and see” posture, particularly as it relates to speculative developments. Back in December, while we were crisscrossing the U.S. in our 2023 Plan Review process, we certainly stressed the importance of not relying on spec development in the individual Business Unit Plans. It reduced the overall 2023 plans by almost 30%. Conversely, we anticipate continuing our work in the Build-to-Suit market. We have enjoyed great success in the BTS market and are working on multiple projects both in preconstruction and construction for several repeat clients. This might be viewed as “TMI”, but we wanted to provide you with real data and input.

Along with utilizing in-house market analytics, we rely on several outside sources like Dodge Data and Analytics for comparative historical data and forecasting. We believe that the U.S. Warehouse Distribution sector peaked in early 2022 and began scaling back last summer. One of the key contributors to the decline was when a large ecommerce player, the largest player in warehouse construction, announced postponements and cancellations of many projects. For perspective, this giant accounted for 16% of all warehouse starts over the past 3 years. Consequently, we see an overall ecommerce driven distribution market to decline 10-15% in 2023. However, the market will still remain much stronger than pre-pandemic levels.

For us, we see 2023 as an opportunity to continue to dominate the distribution construction market, and increase our penetration in the growing manufacturing market. Due to growth in the EV sector of the automotive business, combined with incentives for other onshoring processes, we have seen significant opportunities for growth in this market segment. Alston is fortunate to carry a strong resume and experience base in the automotive business and in particular component manufacturing and parts facilities for many of the largest automakers in the world. We are also developing a platform to expand our reach into material handling, automation and comprehensive supply chain solutions in both new and existing facilities

Other issues driving the “wait and see” theme, lies in the areas of continued material cost escalations (in certain building components) and remaining supply chain issues with cement shortages and electrical switch gear. Labor shortages continue to play a role as well. In addition to these issues, current interest rates are at a level that has driven up Cap rates, and caused many of the major institutions to reduce, pause or cancel planned real estate investments.

Wrapping up here, 2023 should be another solid year for us. Our “wait and see” concerns revolve around the Feds effectiveness in controlling inflation, and seeing if projects that have been placed on hold, are potentially restarted later in the year. It’s also important to note that the fundamental drivers of our core business are sound. Vacancy rates in most major distribution markets are at historic lows, while rental rates remain stable.
We are genuinely excited with the continuing growth and outlook for all of Alston which is a direct result of the great opportunities provided by our clients and friends. The Alston staff is exceptional. We are committed to bringing a quality of service that is second to none.

All the Best,

Paul

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