Archives for May 2024

WILL THE FED CUT RATES IN 2024?​

New CPI Data Shows Inflation Heading Edging Lower

• CPI dropped 10 basis points in April, and is in the 2% range if shelter inflation is excluded
• The Fed’s priority now is to balance the risk of higher rates for longer with the persistence of inflation

What is The Federal Reserves Incentive To Cut Rates?

• Most economic indicators suggest recession risk remains low, meaning the Fed won’t need to cut rates quickly to achieve its growth goals

CRE Markets Are Recalibrating

• Interest rate expectations are biased depending on tenure in the industry
• Investors with the most industry longevity have greater insights into market nuances
• Transaction activity could rise when lenders reduce risk premiums and investors lock in strategies to deploy capita

Sources: Marcus & Millichap Research Services, Federal Reserve

​​Watch Video Below:

 

COULD THE U.S. STILL FACE A RECESSION?​​

If Federal Reserve Holds Rates High For Too Long…​

• The Fed is continuing to hold rates between 5.25% and 5.50% ​
• Rates need to stay high long enough to control inflation, but holding too long could spur a recession​

Indicators Do Not Currently Suggest High Recession Risk​

• Historically, yield curve inversions have served as good predictors of most impending recessions​
• However, the unique economic disruptions and stimulus injection could make the current inversion less indicative​
• Another indicator, unemployment rate, currently suggests we do not face an imminent risk of a recession​

Recession Could Be A Mixed-Bag for CRE investors​

• A recession could slow household formation and consumer spending, weighing on space demand for various CRE properties​
• It could also push interest rates down, helping revive CRE deal flow following a period of investor recalibration to the recession​

*Sources: Marcus & Millichap Research Services, BLS​

Watch Video Below:

 

WHAT 1Q 2024 CRE DATA MEANS FOR INVESTORS​

Apartment and Industrial Vacancy Softens Slightly​

• High construction levels are leading to mild apartment and industrial vacancy increases to start the year​
• Apartment demand is still positive, and both industrial and apartment outlooks for the next 3-5 years are bright​

Multi-Tenant Retail is Having Its Moment in the Spotlight​

• Multi-tenant retail assets absorbed over 1.4M square feet in the first quarter, keeping vacancy near record lows​
• Strong performance within the asset class at a time when most CRE types are seeing softening bodes well for retail investors​

Lack of Space Demand Drop Off to Boost Next Cycle​

• Slight softening as record construction pipelines finalize suggests demand will be heightened once the rate tightening cycle plays out and construction levels diminish​
• As discussed in last week’s video, if CRE fundamentals maintain current levels, investors could regret not deploying more capital this year​

*Forecast​
Sources: Marcus & Millichap Research Services, CoStar Group, Inc., RealPage Inc.​