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February FED Meeting CRE Implications

February 7, 2023 by Marcus & Millichap Research Services

How Will The CRE Market React To The February Rate Hike?

Fed Slows Rate Increases

  • On February 1st, the Federal Reserve announced a rate increase of just 25 bps, the smallest increase since March last year
  • Chairmen Powell declared we are seeing disinflation, supported by several consecutive months of easing CPI, PCE, and PPI inflation measures

How Does This Impact Forward Looking Expectations

  • While the Fed was eager to project continued increases in 2022, Chairmen Powell is once again suggesting a slower moving approach
  • A 25-bps lift in March remains likely, but Chairmen Powell’s posturing has shifted

How will this Impact CRE Investors

  • With rate hikes slowing and recession expectations easing, the probability of a soft landing is gaining momentum
  • Lending rates have begun to ease, potentially reducing some of the upward pressure on cap rates

*10-Year Treasury through February 1, 2023
Assumes three 25 bps hikes at subsequent FOMC meetings.
Sources: Marcus & Millichap Research Services, Federal Reserve

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Filed Under: Research Brief

Three Factors Driving Investor Uncertainty

January 30, 2023 by Marcus & Millichap Research Services

What Factors Are Driving Uncertainty in CRE Markets?

Prolonged Inflation and Rate Hikes Present Recession Risk

  • Inflation and aggressive fed rate hikes have eased, making a 25 bps rate hike likely at the Feb. 1 meeting
  • Although recession risk has moderated, roughly 50% of economists still expect a recession during 2023

Despite Tech Layoffs, Labor Market Still Exceptionally Tight

  • Attention grabbing headlines surrounding layoffs at Microsoft, Google, and others can foster uncertainty, but the unemployment rate remains at a 50-year low
  • Overall, the U.S. economy added nearly 225,000 new jobs in December, and still has over 10.5M job openings

What This Means For CRE Markets

  • If the economy can avoid a major recession in 2023, a shift in sentiment could lead to a revival of apartment, retail, and industrial space demand
  • Underlying data paints a more positive picture than some of the sensationalist media coverage

*Unemployed through December; Job openings through November
Sources: Marcus & Millichap Research Services, BLS

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Filed Under: Research Brief

Best Property Types on a Five Year Horizon

January 23, 2023 by Marcus & Millichap Research Services

Where Are The Best Opportunities within CRE Markets

Apartment and Medical Office Buoyed By Fundamentals

  • While apartment vacancy rose 190 bps last year and rent growth cooled, the structural shortage of housing in the economy should bolster renter demand I the next 5 years
  • The aging Baby Boomer population will aid demand for medical office space as this cohort advances into their 70’s and 80’s

Retail and Industrial Assets Maintain Strong Performance

  • Both Single and Multi-Tenant retail have performed well exiting the pandemic, with multi-tenant rents up roughly 10% since 2019
  • Industrial assets have some construction risk, but with the majority of new inventory coming online in just 10 metros, it should remain a favored asset for investors

Even Within Hard Hit Segment Opportunities Arise

  • While national office vacancy has yet to recovery from the effects of remote work, suburban office space have outperformed expectations
  • Investors should look past any bumps in the road and consider where things well be at 5 years down the road when making decisions

*Sources: Marcus & Millichap Research Services

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Filed Under: Research Brief

How the Labor Market is Impacting the Economy

January 16, 2023 by Marcus & Millichap Research Services

  • Looking forward into 2023, which key indicators should investors watch?
  • How could the Fed’s decision in February impact the CRE market?
  • Why the Fed’s labor shortage battle influences CRE space demand

Sources: Marcus & Millichap Research Services

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Filed Under: Research Brief

What’s in Store For Investors in 2023?

January 9, 2023 by Marcus & Millichap Research Services

  • Have inflationary pressures started to abate?
  • How will the Fed respond in the first few months of 2023?
  • Which economic signals should CRE investors keep their eyes on?

Sources: Marcus & Millichap Research Services

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Filed Under: Research Brief

What the December FED Meeting Means For CRE in 2023

December 19, 2022 by Marcus & Millichap Research Services

Fed Slows The Pace Of Rate Hikes

  • As expected, the Federal Reserve raised the overnight rate 50 bps to a lower bound of 4.25%, following 4 consecutive 75 bps lifts
  • Chairman Powell suggested that the terminal rate may have risen, but set expectations for a slowing pace of increases over the course of 2023

Why Is The Fed Easing Rate Movement

  • While inflation of 7.1% is well above the 2% target, this figure has fallen 110 bps since September
  • Other key indicators like housing, car prices, and gas prices slipped from recent peaks towards the end of 2022

What This Means For CRE Markets

  • Slower, smaller rate increases will reduce uncertainty and give the market time to recalibrate. That will help narrow the buyer/seller expectation gap.
  • If the Fed continues down the path of smaller hikes in 2023 and inflation manages to ease, we could see buyer competition for assets heat up quickly.

*10-Year Treasury through December 14, 2022
Assumes one 25-50 bps hike at the FOMC meeting in February 2023
Sources: Marcus & Millichap Research Services, Federal Reserve

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Filed Under: Research Brief

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This information has been secured from sources we believe to be reliable, but we make no representations or warranties, expressed or implied, as to the accuracy of the information. References to square footage or age are approximate. Buyer must verify the information and bears all risk for any inaccuracies. Any projections, opinions, assumptions or estimates used herein are for example purposes only and do not represent the current or future performance of the property. Marcus & Millichap Real Estate Investment Services is a service mark of Marcus & Millichap Real Estate Investment Services, Inc. © 2020 Marcus & Millichap and Limon Net Lease Group

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