COVID ZIRP Triggers ABCT in LV Industrial RE
The Zero Interest Rate Policy (ZIRP) implemented by central banks during COVID continues to provide real world examples of the Austrian Business Cycle Theory (ACDT). Murray Rothbard wrote, “… the artificial holding down of the bank loan rate below the profit rate will stimulate an excessive borrowing, artificially high levels of investment, and a continuing monetary and price inflation.”
In Las Vegas the vacancy rate for industrial buildings reached 9.5% in the first quarter despite there being positive absorption. “Coming out of (those years) we basically delivered twice as much (space) as we would deliver in any year,” Garrett Toft, a vice chairman for CBRE in Las Vegas, told the Las Vegas Review Journal. “And it all kind of came (online) right at the same time …. So you have all this supply coming online and then demand slows down and we went from absorbing around 10 million square feet of space a year to last year in 2024, we only absorbed 3.2 million square feet of space.”
Compared to the current nearly double-digit vacancy rate, “Vacancy rates within the industrial space actually hit a record low (0.9 percent) in the second quarter of 2022 during the pandemic, according to the CBRE report, due to high demand for warehouse and distribution space,” Patrick Blennerhassett writes for the LVRJ.
CBRE reports that the construction pipeline for industrial space is currently 7.7 million square feet, decreasing from a high water mark set in the third quarter of 2023 (20 million square feet). “The valley’s industrial market has also seen a record-breaking influx of more than 46 million square feet of new projects, and at the end of the first quarter approximately 25 percent of this recently delivered space remained unoccupied.”
The result is a tenants’ market, writes Blennerhassett. “The market has shifted to be more tenant-friendly, with landlords becoming more flexible and competitive to secure deals,” read the [CBRE] report. “This could influence the types of sales and leases being negotiated. A rising overall vacancy rate and increase in available space may lead to a more competitive pricing and opportunities for buyers as well.”
Rothbard explained,
expansion of bank money causes an artificial lowering of the rate of interest, and an artificial and uneconomic overinvestment in capital goods: machinery, plant, industrial raw materials, construction projects. As long as the inflationary expansion of money and bank credit continues, the unsoundness of this process is masked, and the economy can ride on the well-known euphoria of the boom; but when the bank credit expansion finally stops, and stop it must if we are to avoid a runaway inflation, then the day of reckoning will have arrived.
