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Archives for October 2022

What the Yield Curve Inversion Means for CRE

October 31, 2022 by Marcus & Millichap Research Services

What Yield Curve Inversion Means for CRE Markets

3-Month Treasury Yield Rises Above The 10-Year

  • The 3-month and 10-year treasury yield curve inverted last week, signaling heightened risk of an impending recession
  • An inverted yield curve is not a foolproof indicator. A recession followed 8 of the last 10 inversions

Expectations Point Toward A Mild Downturn If One Occurs

  • Economists continue to forecast very mild decreases in economic growth for the first two quarters of 2023
  • The most significant factor influencing recession risk has been hawkish Federal Reserve policy in response to elevated inflation

CRE Investors Should Keep Long-Term Outcomes In Mind

  • Intense media discussion of downside risk can weigh on investor sentiment, often pushing investors to the sidelines, but downturns are followed by growth that generally lifts CRE performance
  • The weakened short-term economic outlook offers investors an opportunity to calibrate their strategies to capitalize on the next expansion cycle

*Through October 27
Sources: Marcus & Millichap Research Services, Federal Reserve

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Filed Under: Research Brief

Why Buy CRE in Times of Uncertainty

October 24, 2022 by Marcus & Millichap Research Services

How Investors Can Capitalize on Periods of Rising Uncertainty

Economic Headwinds Grow

  • The Fed maintains aggressive posturing in its fight against inflation, fueling heightened recessionary fears
  • Recessionary risk drives uncertainty, pushing some investors to the sidelines

What Can We Learn From Prior Periods of Uncertainty

  • Recessions do not impact all metros and property types the same; The dot-com burst in 2000 hit some markets hard while others achieved substantial growth
  • During COVID-19, Investors delayed purchases to wait for a wave of distressed assets that never materialized

How Investors Can Find Opportunities In The Current Market

  • Periods of high uncertainty can bring rarely traded assets to the market, creating unique acquisitions for CRE investors
  • Investors can reposition portfolios to better align with future market trends and demographic shifts

*Through October 19
Sources: Marcus & Millichap Research Services, Federal Reserve

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Filed Under: Research Brief

What the Falling Euro Means for the U.S. CRE?

October 17, 2022 by Marcus & Millichap Research Services

What The Plummeting Euro Means For U.S. CRE Investors

European Economy Faces Uncertainty

  • Recession fears are growing in Europe, with Eurozone inflation at 9.1%
  • Russian oil and gas imports are down 35% and 73% respectively, dampening Europe’s productivity

USD Records Surge in Value Relative to the Euro

  • The Euro-Dollar exchange rate has been falling rapidly, hovering near $1 since summer 2022
  • As a result, European and global investors are shifting funds into dollar denominated assets, like U.S. CRE

U.S. CRE Viewed As a Safe Bet For Global Investors

  • U.S. CRE is seen as a more stable investment during periods of global economic uncertainty
  • Since 2003, European investors have increased capital investments into U.S. CRE by an average of 15% in years when the Euro fell against the U.S. Dollar

*Through 3Q
Sources: Marcus & Millichap Research Services, ECB

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Filed Under: Research Brief

How FEDs Actions Impact CRE

October 10, 2022 by Marcus & Millichap Research Services

What To Expect Following The Release of New Labor Data

Near Term Hurdles

  • The Fed’s commitment to slowing inflation is beginning to weigh on the economy
  • The Fed is expected to raise the overnight rate by another 75-basis points at the November 2nd Fed meeting

Effect on the Economy

  • Unemployment remains low at 3.7%, but reduced job openings suggests labor market loosening
  • Other indicators like the ISM manufacturing index are still in positive territory, but are beginning to weaken

Impact on CRE

  • Rising uncertainty may weigh on investor sentiment
  • Investors must consider longer-term horizons when crafting there CRE strategies moving forward

*Through August
Sources: Marcus & Millichap Research Services, BLS

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Filed Under: Research Brief

Commercial Real Estate VS S&P 500

October 3, 2022 by Marcus & Millichap Research Services

CRE Delivers Durable Returns Over the Long-Run

CRE Outshines Alternatives

  • Economic volatility and near-term uncertainty are weighing on the broader investment outlook
  • CRE’s has historically delivered comparably low volatility, and sturdy performance

How CRE Compares to the Stock Market

  • CRE yields have been relatively stable over the last two decades
  • While the stock market is down 24% so far this year, CRE has sustained momentum

Favorable Characteristics of CRE

  • Underlying demand drivers remain sound, providing some insulation against wider economic turbulence
  • As a hard asset, CRE offers some inflation resistance
  • Investors favor CRE cash flows and the range of financing options

*Estimate through September 28
Wilshire 5000 Total Market Full Cap Index used for stock market capitalization
Commercial real estate total return includes apartment, retail, office, and industrial properties $1 million and greater; includes non-leveraged weighted average returns on property price appreciation and cumulative cash flow; S&P 500 total return based on price index appreciation and cumulative dividends (dividends not re-invested)
Sources: Marcus & Millichap Research Services, Wilshire Associates, BEA, National Bureau of Economic Research, Moody’s 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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