Limon Net Lease Group

Archives for August 2024

Why the Last 5 Years Suggest Strong CRE Outlook

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What the Past 5 Years Tell Us About the Future​

Range of Rare Headwinds of The Last 5-Years​

  • A once in a century pandemic​
  • 40+ Year High Inflation​
  • A 500+ basis point interest rate surge ​

Despite Headwinds, CRE Performance Generally Sound ​

  • Vacancy rates remain range-bound (except office) proximate to long-term averages​
  • Positive sustained rent growth for most property types and most metros ​

CRE Investment Activity Poised to Accelerate ​

  • Given CRE’s performance through some of the most severe headwinds on record, consider the potential going forward​
  • Assuming a soft-landing, lower interest rates and a deep well of readily available capital, the CRE investment outlook positive​
  • Consider the potential of CRE if the wind isn’t in the sector’s face…​

*Through August 22​
Sources: Marcus & Millichap Research Services, CoStar Group, Inc., Real Capital Analytics, Federal Reserve​

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The CRE Investment Climate Just Changed

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Is this a turning point for CRE markets?​

Capital Targeting CRE Investment Increasing​

  • Pent-up dry powder being deployed into CRE assets ​
  • Asset performance remains healthy, aside from some office segments ​

Yield Spread Widening Across CRE Sectors ​

  • The average overall CRE cap rate rose 90 basis points since 2022, to 6.7% ​
  • The gap between the 10-year treasury and CRE cap rates expanded to its widest level since 2022 ​

Cost of Debt Capital Coming Down ​

  • The probability of a September rate cut by the Fed is a near certainty according to Wall Street ​
  • Lenders are beginning to reduce their spreads over the basis as the risk of rate increases diminishes ​
  • Share of lenders tightening their lending standards at lowest level since the second quarter of 2022​

*Through August 14​
Sources: Marcus & Millichap Research Services, CoStar Group, Inc., Real Capital Analytics, Federal Reserve​

​​Watch Video Below:

Is a Weaker Economy Good News for CRE?

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Should CRE Investors Be Celebrating?

Unemployment Rises To 4.3% in July

  • The BLS released data this month showing a 20-basis point rise in the unemployment rate to 4.3%
  • As a result, media outlets and investors began discussing the potential for an upcoming recession

Precision Alters Crucial Recession Indicator

  • The Sahm Indicator rose to recessionary levels on a rounded basis, sparking heightened uncertainty in the media
  • However; on an unrounded basis the Sahm Indicator sits at 49, suggesting we are not entering a recession entering August

Why This Could Be A Turning Point For CRE Investors

  • While cooling economic data is usually a bad sign for the economy, this time it could boost the outlook for investors
  • CRE Investors have near record levels of capital waiting to enter the market, and deal flow is poised to rise quickly if the Federal Reserve responds to economic softening swiftly

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

Discussion Video: