For the week of Oct. 14th-18th
With the election just a few weeks away, CREFC’s David McCarthy shared his thoughts on how the candidates differ on key issues impacting CRE like bank regulations, housing programs, and tax policy. Additionally, we share the results from LightBox’s inaugural Commercial Real Estate Market Advisory Council members on their expectations for near-term CRE transactions.
Here’s our latest top 5 list of the biggest weekly CRE news stories and why they matter.
- Inside the Beltway Perspectives on the Upcoming Presidential Election
On this week’s CRE Digest Weekly podcast, special guest David McCarthy, managing director and head of Legislative Affairs at the CRE Finance Council (CREFC) shared his perspectives on how the U.S. presidential candidates differ on key issues impacting CRE lending. In terms of the near-term outlook for CRE, CREFC’s Q3 Sentiment Index rose to 121.1, an 18% increase from the previous quarter and the highest reading since 2017. “There’s a sense that we’ve gone through some of the worst of the downturn in terms of origination,” observed McCarthy. “There are still a number of distressed loans that will need to be worked out and one rate cut doesn’t solve that, but the Fed pivoted now in a big way that is buoying the optimism in the latest index.”
Why It Matters: The results of this presidential election will impact several key issues affecting CRE finance at a critical point in the market’s recovery. On the key issues he is watching, McCarthy shared that “Tax policy will very much be decided on who is in the White House and where Congressional majorities land. We are also watching housing policies, climate change, and banking regulation that are going to be more impacted by the federal government.”
For more insights into the key issues impacting CRE in the upcoming November election, tune in to last week’s episode of the LightBox Weekly Digest podcast.
- LightBox CRE Market Advisory Council Bullish on Q4 CRE Transaction Levels
This quarter, LightBox is sharing the results of the first quarterly survey of the new CRE Market Advisory Council, which includes leaders from major firms like Cushman & Wakefield, NAI Global, Marcus & Millichap, BGO, Manulife and others. Members from a broad cross-section of the industry characterized CRE market conditions in the 3rd quarter as 70 on a scale from 1 (worsening) to 100 (improving). A significant 82% expect higher property transaction levels in Q4 compared to Q3 and none are expecting a decline.
Why It Matters: The Advisory Council survey results are the latest evidence of a market that is slowly stabilizing and reacting to the first interest rate cut. Early investors are actively shopping for opportunities while others are waiting until later in the rate cutting cycle. Overall, the market is showing a growing intention to transact that was largely absent in the first half of the year.
- CBRE’s Spencer Levy Predicts Near-term Growth but “More Slowly Than We’d Like”
At an event hosted by the Real Estate Finance Association of Connecticut this week, CBRE’s Global Client Strategist and Senior Economic Advisor Spencer Levy delivered his state of the market titled “Searching for Oz.” Levy is predicting a slow decline in interest rates as the U.S. economy continues to battle sticky inflation. The two mega trends expected to shape CRE opportunities are the “reshoring of manufacturing and the nexus of live/work/play development,” both of which will drive the next round of investment hot spots. Transactions for the 2024 calendar year will come in at “about the same level as last year, but deal size is larger and portfolios that traded at a discount are now closing at more neutral levels.”
Why It Matters: Post-COVID shifts in population, talent, manufacturing, and building are the forces that will steer investors to the next round of opportunities. Metros like Austin, Texas that combine a strong manufacturing base and intellectual capital will attract the attention of investors. The market is responding to the first interest rate cut but change is not going to happen overnight. Interest rates are “hugely important to investors,” and as they come down, the math behind deals will work better than it has in the past few years.
- Retail in Spotlight as Walgreens Announces 1,200 Store Closures
In its latest earnings report, Walgreens announced plans to close about 1,200 of its roughly 8,700 stores over the next three years, as the retailer struggles with slower consumer spending and competitive challenges in the primary care segment. In August, U.S. store closings surpassed openings for the first time this year as the result of a surge of bankruptcy filings by struggling retailers.
Why It Matters: Despite the latest round of closings, demand for retail space still outstrips supply. Vacancy rates in retail have stayed below 5% for 11 straight quarters and average asking rents increased. Recent leasing patterns show that as stores by retailers like Walgreens close, they are backfilling quickly by tenants in a broad range of sectors looking for retail space, like Dollar General, Burlington Stores, and the TJX Companies.
- Latest Economic Barometers Point to Resilient Economy
Retail spending data in September increased by a seasonally adjusted 0.4% from the unrevised 0.1% gain in August, and coming in better than the 0.3% Dow Jones forecast. Notably, that 0.4% increase reflects strength in a broad range of categories that overshadowed weaker gas and automobile spending. Also this week, came a 19,000 drop in unemployment claim filings reported by the U.S. Labor Department. The claims total of 241,000 was lower than the 260,000 estimate and likely reflects a drop after the spike in the week prior due to claims related to the impacts of Hurricane Helene and Hurricane Milton.
What It Means: Retail sales rising more than expected combined with new claims for jobless benefits that fell unexpectedly are both positives for the U.S. economy. Reports on consumer spending, inflation, and the labor market are all in the spotlight in the weeks leading up to the next meeting of the FOMC in mid-November. After retail sales, jobless claims, and industrial production data, markets are pricing in 89% odds of a quarter-point Fed rate cut at the Nov. 7 meeting.
Did You Know of the Week
Did you know that multifamily represented 35% of properties brought to market in LightBox’s RCM platform, at an average price of $45.6 million and a high of $291.3 million?
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