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Archives for July 2022

Has CRE Momentum Shifted to the Suburbs?

July 25, 2022 by Marcus & Millichap Research Services

Has CRE Momentum Shifted to the Suburbs?

Was the Suburban Migration Purely a Pandemic Trend?

  • Migration from urban core underway before pandemic
  • Driven by aging millennials forming families
  • Fueled demand for single-family homes

Population Shift Already Being Felt

  • Suburban CRE has largely outperformed
  • Demographics to sustain trend
  • Companies adapting to tight labor market, jobs following employees to suburbs

Considerations for CRE Investors

  • Long-term trends will persist beyond health crisis; sustaining demand for many suburban properties
  • Urban revival underway, but gradual
  • Return-to-office plans could change with economy and job market

*As of 2022
Sources: Marcus & Millichap Research Services, U.S. Census Bureau, National Association of Realtors

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Filed Under: Research Brief

Implications of Rising Inflation for CRE

July 18, 2022 by Marcus & Millichap Research Services

What Investors Should Know About The Latest Inflation Data

Inflation Rose at Highest Pace in 41 Years

  • Driven by energy prices, CPI inflation surged 9.1% in June over last year
  • Declines in fuel and commodities prices may ease inflationary pressure

Aggressive Fed Action Expected

  • Fed likely to raise interest rates by 75-100 bps on July 27
  • Abundant capital continues to target CRE; Mitigates risk of market softening

Implications for CRE

  • Financial market volatility benefits stable investments such as CRE
  • Inflation resistant properties favored
  • Higher yield secondary/tertiary markets increasingly favored
  • Commercial assets with rent escalators and properties with short-leases or value-add opportunities favored

*Through June; 10-Year Treasury through July 14
Sources: Marcus & Millichap Research Services, BLS, Federal Reserve

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Filed Under: Research Brief

Will The Next Recession Affect CRE Returns?

July 11, 2022 by Marcus & Millichap Research Services

What Would a Recession Mean for CRE Investors?

No Consensus on Timing of Next Recession

  • Robust job gains, strong wage growth and steady retail sales suggest steady growth outlook
  • However, exorbitant inflation, rising rates and falling stocks could slow spending, inducing a recession

How Severe Could the Next Recession Be?

  • Both Health Crisis and Financial Crisis recessions hit economy and CRE hard, unlikely to happen again
  • Recessions in 1981 and 1990 most comparable; preceded by high inflation and strong Fed action
  • Full impact varies greatly by location and asset type

CRE Has Performed Well Through Most Recessions

  • Returns for all property types softened in the 80’s, dipped negative in ‘91; Apartment saw the smallest declines
  • Retail and Office experienced substantial downward pressure, followed by strong, steady growth
  • Industrial had similar impact, but returns have outperformed in last few years

*Through 1Q
Trailing 12-month average; Includes Apartment, Retail, Office, Industrial, and Hotel properties
Sources: Marcus & Millichap Research Services, NCREIF

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Filed Under: Research Brief

How Global Forces Affect the U.S. CRE Market

July 5, 2022 by Marcus & Millichap Research Services

Why Is the U.S. a Top Destination for Foreign CRE Investors?

Upswing in Foreign Investment Into U.S. CRE

  • Foreign investment totaled $72B in last 12 months, double the amount at the height of the pandemic
  • On average, makes up 10% of total investment in U.S. CRE
  • Canada led foreign investment, followed by Singapore, China, Germany and South Korea

Economic Outlook Supports Long-Term Investments

  • Low unemployment, job creation and robust consumer spending suggest strong economic growth
  • While labor shortages and inflation remain headwinds, underlying demand drivers will sustain CRE performance

U.S. Offers Market Stability and Higher Yields

  • Average U.S. CRE cap rate is about 5.9%, higher than 5.5% in the U.K., 5.3% in Canada and 4.7% in Germany
  • Investors willing to outbid local investors to place capital in specific secure assets and markets
  • Global economic shifts may bring more foreign investors to U.S. – Creates new opportunities for the right sellers

*Trailing 12 months through 1Q
Includes apartment, retail, office, industrial, and hotel sales $2.5 million and greater
Sources: Marcus & Millichap Research Services, Real Capital Analytics

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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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