Newmark: The Infrastructure Investment and Jobs Act
On November 15, 2021, President Biden enacted the Infrastructure Investment and Jobs Act (IIJA). This new legislation has important long-term macroeconomic implications for the country’s competitiveness on a global scale by improving resilience, productivity and economic growth, as well as national and regional implications for development and investment in the economy. commercial real estate. The following is a summary of the IIJA and the specific implications for industrial real estate.
The roughly $ 1.2 trillion legislation – mostly funded by reallocated, unspent funds and new revenue – contains reforms and funding for previously approved infrastructure projects and programs and about $ 550 billion in new ones. investments. These expenditures will focus on a variety of infrastructure projects ranging from physical infrastructure – such as improving and expanding physical transport networks (roads, railways, ports and waterways, airports and public transport) – to water, electricity and internet infrastructure, among other initiatives.
The greatest projected beneficiaries of the IIJA:
Now that the bill has been signed, implementation – including the creation of rules and regulations – will take months longer; then state and local governments will have to decide which projects will receive monetary allocations. These physical infrastructure expenditures will require a wide variety of materials and products, such as steel and lumber, as well as labor, both in skilled trades and in administration. Labor and commodity markets are still in a state of pandemic-induced volatility, but new spending and construction related to this bill will not begin until 2022 at the earliest, and therefore may not exacerbate current shortages. of raw materials and the resulting price increases *. However, the timeline could still present challenges on the way to infrastructure opportunities, especially in sourcing skilled labor – a difficulty often in the construction industry even before the pandemic **.
The new legislation has a myriad of long-term implications for national and regional industrial real estate. The majority of the IIJA is directed to the transportation sector, with the largest allocation of funds ($ 110 billion) going to improving roads and bridges, which will facilitate more efficient movement of goods. In a 2014 survey by the Urban Land Institute and EY, the quality of infrastructure (specifically, improving roads, bridges, and public transportation) was the primary determining factor in real estate development decisions. According to a November 15, 2021 note on the IIJA from global industrial REIT Prologis, “where states and localities choose to invest their money in a major development could influence where logistics companies such as Prologis and its customers invest in new properties ”. Once transportation improvement or expansion projects have been formally identified, land for industrial development as well as existing industrial properties nearby may increase in value.
E-commerce has been one of the drivers of paradigm shift demand for industrial real estate, and it is expected to continue to grow thanks to another major provision in the bill: $ 65 billion has been earmarked for expanding and improving Internet access, particularly in remote and rural underserved areas. areas. This will provide a number of advantages, including greater opportunity for consumers offered by the online market. Improving ease of access has the potential to attract new customers to the digital economy and increase the need for industrial space to support and expand e-commerce supply chains.
Other ways in which the industrial sector may be impacted by the IIJA relate to energy, ranging from supporting the electrification of transportation systems and electric vehicle charging stations to investments in renewable energies and improvement. the resilience of the electricity network. This will benefit a variety of industrial users with high energy needs and support the higher expectations of investors, tenants and consumers for a shift in the logistics industry towards more sustainable and efficient energy use.
Industrial real estate is essential to the production and movement of goods, and this unique injection of federal spending will support and expand the physical infrastructure that makes this movement possible, ensuring long-term benefits for the industrial asset sector.
* For more information on the current supply chain disruption and its impact on commodities and prices, please see Newmark’s 3Q21 Domestic Industrial Market Conditions and Trends Report.
** 2019 Sage Construction, Associated General Contractors of America Hiring and Business Outlook Survey
Additional sources: Newmark Research, The White House, Prologis, Brookings Institute, Deloitte, Committee for a Responsible Federal Budget, Urban Land Institute