New warehouse, home construction slow in 2024

VISALIA – Cities with the population and Mid-Western sensibilities of Visalia are often considered a bellwether for the national economy. If that’s the case, the national economy seems paused for now, but poised for growth in 2025.  

The prime example is a sprawling 1.1 million-square-foot warehouse, which has been vacant since it was completed this summer. The big building was rumored to be Amazon’s third warehouse in Visalia but is actively searching for a tenant. Reports from Southern California, near CapRock’s headquarters in Newport, tell the same story – a big drop in new construction along with leasing in the industrial market.

Amazon has led the rapid expansion of the industrial park with two big employment centers and, along with UPS, have provided thousands of jobs in the area over the last five years. The employment boom fueled an uptick in new home building in Visalia as well as strengthening the local retail sector.

The latest figures provided by the City of Visalia, however, show that both home construction and commercial construction have weakened in 2024. Through October Visalia has permitted 219 new homes so far this year compared to an average of more than 600 per year in 2019, 2020 and 2021. It slowed in 2023 to 335 as interest rates climbed.

The downturn here hit the commercial sector as well. The square footage of new commercial buildings in Visalia led by industrial park construction has seen a dramatic slowdown in 2024. The city has averaged 1.72 million square feet of new commercial space for the last five years, with a record 2 million in 2023. This year, just 325,000 square feet of commercial space was constructed as industrial developers have slammed on the brakes.

Paused for now

Nationwide, we see a similar trend. The Wall Street Journal recently reported that “The amount of industrial real estate under construction in the third quarter fell to 309 million square feet, down 43% from the previous year and the steepest drop since 2008. A contraction in the U.S. warehousing sector is deepening following a period of frenzied expansion during the pandemic.” 

Last month, Globe Street (GlobeSt.com), a trade publication tracking stories and trends in commercial real estate, reported that “Home Depot is a company whose fortunes rode high during the pandemic. If people couldn’t get out and about or move to a new place, they would certainly fix the old one up. Sales in fiscal years ending around the end of January went from $132.1 billion in 2021 to $151.2 billion in 2022, $157.4 billion in 2023, and then $152.7 billion in 2024.”

But now the Wall Street Journal is reporting that Home Depot is looking to sublease four warehouses totaling about 4.7 million square feet in space that it had been using in Monroe, New Jersey; Goodyear, Arizona; Joliet, Illinois; and Riverside, California. When supply chains were in tangles, the company had been bringing in additional inventory from Asia and it had to go somewhere.

Home renovations have since fallen off because consumer needs are different now. As the Journal noted, low sales of existing homes and higher interest rates have put a damper on renovations and repairs. Less need and higher costs will do that.

In the fall of 2022, Amazon, which had doubled its logistic network during an e-commerce spike when storefronts were closed, cut 53 million square feet from its footprint. The online retailer shuttered warehouses, subleased a block of its industrial space, canceled new fulfillment center projects that haven’t broken ground, and delayed the opening of newly built warehouses for up to two years.

However, it can be hard to ultimately see what companies are doing when change is happening quickly. A May 2024 Globe Street analysis of Amazon financial filings showed that while the pace of growth in real estate has slowed over the last few years, it’s never dropped below zero. The year-over-year changes from 2020 through 2023 in all real estate leased or owned by Amazon were: 2020 (50.3%); 2021 (30%); 2022 (6.1%), and 2023 (5.3%).”

Poised for Growth

The good news is that a lack of new construction means there are more available leases for companies looking to relocate or expand. 

If the boom ever returns, Visalia is ready with thousands of acres of available land around the industrial park ready to add millions of square feet in warehouse space. Besides the CapRock spec building there are four spec industrial buildings that are complete or nearly complete which will be ready for a tenant when prospects are ready for the space.

Similar to the industrial sector, residential developers are poised to build thousands more new homes as interest rates come down. Both homebuilders and industrial builders have annexed new land into the city limits of Visalia and have filed parcel maps for a score of new developments.

The expected uptick in new home construction in Visalia has been brought about by seven annexations into the city limits in the past year or so by home developers including the 500-acre, 3,200-home project Carlton Acres that includes the big Costco northside retail project. Both the homes and the big box retailer along Riggin Avenue are expected to break ground in 2025.

Now Ritchie Ranch is being proposed as a new 325-unit subdivision to be built by Lennar Homes, the Valley’s largest home builder, at Demaree Street and Riggin Avenue in northern Visalia.