Archives for January 2023

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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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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• 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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• 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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