Limon Net Lease Group

Archives for June 2021

The Winners and Losers of the Fragmented CRE Recovery: A Tale of Two Cities

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National Recovery is Just One Piece of the Story

  • The move towards a full national reopening will bode well for the economy and commercial real estate
  • But the pandemic has impacted every market differently, with some seeing rapid recoveries and others lagging

Fragmentation Occurring in Commercial Real Estate

  • Nationwide, Apartment and Retail rents are down slightly, Office is down moderately, and Industrial rents rose
  • However, Inland Empire and Sacramento Apartment rents rose 11% and 7%, while San Jose rents dropped 16%
  • This bifurcation is found across all property types and metros, creating drastic variance in the local level

Investors Must Pay Attention to Local Nuances

  • The situation can differ greatly from market to market, even within the same state
  • Investors should understand national trends, but also be aware of the variance between individual markets
  • Leveraging experts on particular property types and markets will be crucial for crafting an investment strategy
* As of 1Q 2021
Sources: Marcus & Millichap Research Services, RealPage, Inc., CoStar Group, Inc.,

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What the Ongoing Economic Recovery Means for Real Estate Investors

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Economic Recovery Underway – Some Headwinds Persist

  • May retail sales are slightly down from April, but 18% above pre-pandemic levels; Core retail sales up 16%
  • As more states reopen, signs point to a summer boost
  • Labor shortages forcing restaurants, Hotels and Retailers to operate understaffed; driving wage & inflation pressure

Current Market Conditions Bolstering CRE Investor Demand

  • Real estate’s rents and value tend to keep pace with rising costs, making it a good hedge against inflation
  • High liquidity and low interest rates further fuel investor demand, particularly for Apt, Industrial and Self-Storage
  • This lifts prices and puts downward pressure on cap rates

Sellers Can Ride Major Tailwinds, For Now

  • Investors who sell will benefit from the wave of buyers and capital flooding into the sector
  • Prime opportunity to take chips off the table, do a sale-lease back, or reposition to new market or property type
  • However, the eventual market recalibration and potential rise in interest rates could limit this window of opportunity

*Core retail sales exclude auto and gasoline sales
Sources: Marcus & Millichap Research Services, U.S. Census Bureau

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Retail Sales June 2021 | Retail Sales Flatten as Shoppers Rely Less on Government Stimulus

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Consumer spending well ahead of pre-pandemic level. Although core retail sales dipped 0.8 percent from April to May, expenditures are 15.7 percent above the February 2020 level as stimulus funds and amplified unemployment benefits flooded the economy with additional capital. Monthly gains are anticipated to be modest this year as further direct cash payments are unlikely. Only one more bill can be passed through the Senate with the reconciliation process, and resistance to additional large spending legislation is gaining momentum. Rising inflationary concerns are giving some legislators on Capitol Hill pause. Core inflation jumped 3.8 percent last month, the largest gain in more than three decades. The producer price index, mean-while, soared 6.6 percent on an annual basis. Collectively, the sharp rise in prices will prompt more caution among budget hawks.

Tailwinds for retail real estate gain momentum. As of mid-June, nearly all states have lifted the restrictions that most negatively impact brick-and-mortar retail stores. California and New York, two of the largest states by population, withdrew nearly all restrictions associated with COVID-19 as nationwide case positivity rates fell to the lowest levels since the beginning of the pandemic. Barring the emergence of a variant that skirts existing vaccinations, retailers that have struggled with capacity restrictions should benefit in the coming months. Restaurants, in particular, are already seeing an increase in traffic, posting a 1.6 percent rise in sales last month relative to February of 2020.

Utilization of  services cuts into consumer spending. While it may take some time for Americans to get acclimated to normal life following lockdowns that lasted approximately 15 months, retail sales are already beginning to stabilize on a monthly basis. Furthermore, more people are using services, which are not reflected in the Census Bureau’s advanced estimate. For example, “A Quiet Place Part II” recently surpassed $100 million in domestic box office receipts, the first movie to break that threshold since the onset of the health crisis. Visits to gyms, meanwhile, were only 23 percent lower than pre-pandemic levels at the end of May.

15.7%

0.8%
Gain in Core Retail Sales Since Feb. 2020 Monthly Decrease in Core Retail Sales in May 2021

Sources: Marcus & Millichap Research Services; Bureau of Labor Statistics, Federal Reserve; Placer.ai; Transportation Security Administration; U.S. Census, Bureau

 

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5 Things Every Multifamily Investor Needs to Consider This Year; Economic and Apartment Market Update and Outlook – 06.16.21

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The current multifamily investment climate is highly dynamic.

The ongoing economic recovery, potential public policy changes and COVID-driven behavior shifts create a unique outlook that every investor should be tracking for the rest of 2021.

Key Features Include:

  • Economic update and outlook
  • Behavior changes and impact
  • Key tax reform proposals and implications for multifamily
  • Apartment fundamentals and investment sales trends

Download the Full Report Here

Is Now a Unique Window of Opportunity to Sell Real Estate?

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IS NOW A GOOD TIME TO SELL REAL ESTATE?

Investors are Getting Back In the Game

  • As uncertainty abates, investors with large capital reserves are increasingly looking to buy properties
  • Tremendous market liquidity and still-low interest rates further fuel aggressive bid activity, boosting prices
  • Rising prices are putting downward pressure on cap rates

Interest Rate and Tax Policy Uncertainty Raise Questions

  • Higher prices create concerns around inflation and rising interest rates; would tighten yield spreads
  • Proposed capital gains tax changes could further offset potential property value gains

Is Now the Best Time to Sell Commercial Real Estate?

  • Investors considering the sale of a property in the next few years should explore the opportunities allotted today
  • While pricing pressure is strong, rising interest rates and prospective tax changes could eat away at future gains
  • Investors can capitalize on the current market to cash out or exchange into a new market or property type
* Through June 09, 2021
Includes apartment, retail, office, and industrial sales $1 million and greater
Sources: Marcus & Millichap Research Services, CoStar Group, Inc., Real Capital Analytics, Federal Reserve

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SELF-STORAGE INVESTOR SENTIMENT SURVEY | Self-Storage Investors Share Their Forward-Looking Insights;

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Investor Outlook for Self-Storage Pricing and Performance Remains Positive

Sentiment for self-storage assets is largely optimistic as record-low vacancy and rising property values bolster investor confidence.

Over 400 market participants offered their perspective on where they think the industry is headed over the next 12 months including insights on a host of trends impacting the industry.

Key Features Include:

  • Vacancy and rental rate outlook
  • What’s next for cap rates and property values?
  • Expectations for interest rates, business expenses and more