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Archives for May 2023

The Lasting Impact of Covid on CRE

May 30, 2023 by Marcus & Millichap Research Services

Residual Covid-19 Ripples Still A Significant Factor for CRE

Worker Shortage Shrinking, But Far From 2019 Level

  • There are 9.6 million job openings in the economy, roughly 2.5 million higher than in 2019
  • The shortage will impact business’ ability to grow while reinforcing upward wage pressure and remote work practices

Rethinking Supply Chains In the Long-Term

  • While supply chain frictions have eased, a shift toward bringing production closer to U.S. consumers occurred
  • This will most directly impact industrial properties, but will aid other property types through job creation

Behavioral Changes Accelerate Shift to Suburbs

  • Apartment, retail, and office vacancy rates are lower in suburban areas nationally than CBDs in 1Q 2023
  • This trend is supported by both a large population of millennials aging into prime family formation years, and an uptick in marriages after the pandemic

*Through April; Job openings through March
Sources: Marcus & Millichap Research Services, BLS

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Filed Under: Research Brief

CRE Fundamentals, Drivers, and Trends

May 22, 2023 by Marcus & Millichap Research Services

Where CRE Fundamentals Stand And What It Means For Investors

Opportunity Exists In CRE, Even In Hard-Hit Sectors

  • Local market dynamics can outweigh strong macro trends; some markets have stable or improving office vacancy rates, despite broad-based headwinds
  • Opportunities in impacted CRE segments highlight the importance of looking beyond national trends

Retail and Industrial Outperforming as Sectors

  • The multi-tenant retail sector now has vacancy below the 1Q 2020 level in 24 major U.S. markets
  • Industrial properties are also recording lower vacancy in 40 of 48 tracked metros, spurred by 52 consecutive quarters of positive net absorption

Investors Should Look Beyond The Headlines

  • All property types have locations, segments, and asset types that have exceeded national performance trends
  • Opportunities exist in the market despite economic headwinds if investors stay alert and active

*From 1Q 2020 to 1Q 2023
Sources: Marcus & Millichap Research Services, CoStar Group , Inc., RealPage Inc

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Filed Under: Research Brief

The Employment Market and Wage Inflation

May 15, 2023 by Marcus & Millichap Research Services

What Emerging Workforce Trends Mean for Investors

Labor Market Still Showing Signs of Strength

  • The unemployment rate in April fell back to 3.4 percent, while the labor shortage fell to 3.7 million
  • A decrease in immigration and of older workers in the labor force are helping sustain the shortage

Diminishing Wage Pressure To Aid Inflation Fight

  • Despite the shortage of workers, wage growth has fallen off recent highs to 4.3% annually
  • Construction wages are 15.3% higher than before the pandemic, creating additional delays in construction

What This Means For Investors

  • As wage growth is a major concern of the Fed, a slowdown may signal that it is time to pause rate hikes
  • Certainty in the interest rate climate would help investors, developers and lenders achieve stable financing outcomes on projects and plans

*Through April; job openings through March
Sources: Marcus & Millichap Research Services, BLS

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Filed Under: Research Brief

FED Meeting & Banking News CRE Implications

May 8, 2023 by Marcus & Millichap Research Services

What The FED Meeting and Banking News Means For Investors

Federal Reserve Raises Rates But Changes Tune

  • The Federal Reserve once again raised the overnight rate by 25 bps at the May meeting, to 5.00%-5.25%
  • Language in The Fed’s press release suggested the Fed is entering a “wait-and-see” approach as opposed to expecting additional hikes

Regional Banks Still Face Risks As Major Sale Occurs

  • After customers withdrew $100B in Q1, First Republic Bank was seized by regulators and auctioned to JPMorgan Chase
  • 61% of First Republic’s lending was in SF housing, 13% was multifamily and 6% was other CRE

Rate Stability To Aid Lenders and CRE Investors

  • If the Fed stops raising rates, lenders and banks can begin to stabilize their lending standards
  • Long-term demand drivers remain sound for the majority of CRE types

*Through May 04
Sources: Marcus & Millichap Research Services, Federal Reserve, CME Group

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Filed Under: Research Brief

Examining the CRE Perception Gap

May 1, 2023 by Marcus & Millichap Research Services

Perception Gap Emerging in the CRE Market

Economic Indicators Show Strength Despite Recession Risk

  • 1Q GDP data shows a 1.1% annualized growth rate in 2023, in line with the Blue Chip consensus forecast of 1.2% this year
  • The U.S. economy also added more than 1 million jobs in the first 3 months of 2023, despite high-profile tech layoffs

KPI’s Are Strong for Most Asset Types

  • When compared to pre-pandemic averages, most property types are recording stronger fundamentals in 2023
  • Annual rent growth through 1Q exceeds the pre-pandemic average for all the major asset types besides office, with retail and industrial vacancy also lower in 1Q 2023

Office Presents Headwind, But Overall Outlook Bright

  • Office vacancy is up nearly 370 basis points from its 1Q 2019 level, with rent growth below the pre-pandemic average
  • The perception of a broad-based CRE reset being pushed by the media does not align with the current data, forming the perception gap in the market

*5-year period from 2015-2019; ADR growth for hotel
Sources: Marcus & Millichap Research Services, CoStar Group, Inc, RealPage, Inc.

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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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