For the week of Nov. 25th-29th
On this shortened Thanksgiving week, the top news story was the just-released PCE inflation data for October and its implications for the Fed’s last meeting of the year. Black Friday officially kicked off the holiday shopping season with mixed reports from leading retailers, and early results showing e-commerce sales edging out in-store spending. Among the latest leasing and sales transactions are notables that speak to the growing momentum in the commercial real estate market and proof that deals are closing at prices above prior sales across geographies and asset classes.
Here’s our latest top 5 list of the biggest weekly CRE news stories and why they matter.
- PCE Report for October: Inflation Gauge Rises to 2.3% Annually
The latest Personal Consumption Expenditures (PCE) Price Index, the Fed’s preferred measure of price pressures, confirmed that inflation’s progress toward the Fed’s 2% target is uneven. In October, the overall PCE Index rose 0.2% on a monthly basis and 2.3% on an annual basis. Another spike in housing-related expenses was a key reason the index remains stuck above the 2% target. Excluding volatile food and energy prices, core PCE inflation rose 0.3% on a monthly basis and 2.8% on an annual basis. While the higher PCE reading last month doesn’t negate the progress of the past two years, it does highlight that inflationary pressures remain a threat.
Why It Matters: Economists still widely expect price levels to continue moderating despite these minor monthly setbacks. The latest inflation reports are evidence that the last leg of the Fed’s fight against inflation could be a slow grind. Despite the rise in headline inflation, traders increased their bets that the Fed would vote in a third rate cut at its December meeting. Odds of another 25 basis-point rate reduction were 66% at mid-week.
- Black Friday Chill as Consumers Tread Cautiously
Black Friday isn’t what it used to be. The once-iconic shopping day has transformed into a month-long marathon of early deals and extended markdowns. While consumers remain eager for discounts, the dynamic has shifted significantly. According to Mastercard SpendingPulse, Black Friday sales grew 3.4% year-over-year, driven primarily by e-commerce, while in-person sales saw less than 1% growth. The frenzy of in-store shopping has largely moved online, reflecting the evolving preferences of today’s shoppers.
The first round of Q3 earnings reports from retail giants last week were followed by others that could spell trouble for some retailers this holiday season. Add Kohl’s to the list of retailers like Target and Macy’s who saw a bigger drop in Q3 sales than expected, an early sign of what could be a slower-than-usual (and shorter) holiday shopping season. As of mid-November, online sales for more than 200 retailers are down 2.5% so far this year, according to e-commerce trade body IMRG, and in-store consumers exhibit a preference for cost-conscious retailers like Walmart and TJ Maxx. The National Retail Federation is still forecasting holiday spending overall will grow between 2.5% and 3% this year over 2023 given a U.S. economy that remains fundamentally healthy.
Why It Matters: Retailer data, as well as credit-card and other spending data, will be in focus as the calendar turns the page to December. Major retailers are looking for Black Friday to reignite tepid demand from budget-minded shoppers. Retail spending is a critical driver of demand for leasing space like shopping malls, grocery, and shopping centers. If retail spending falls, brands will look to close underperforming stores which in turn impacts the owners who will need to fill a vacancy with another tenant, while those with rising revenues may look to expand their network of stores.
- Trump Taps Hawkish Scott Bessent to Lead Treasury
The market responded positively to President-Elect Trump’s selection of hedge fund executive Scott Bessent as head of the Department of Treasury. In response to the news, the Dow reached a new record high of 44,737, the S&P 500 ticked up by 0.3%, and Treasury yields ticked down to a two-week low of 4.32%. Bessent could be a voice for moderation in Trump’s campaign promises to implement tariffs on imported goods, while he is likely to focus on deficit reduction efforts, having been quoted recently in the Wall Street Journal saying that “time is running out for the U.S. economy to grow its way out of excessive budget deficits and indebtedness.”
Why It Matters: The announcement of Trump’s selection of Bessent was met with a sharp decline in the 10-year Treasury yield to a 2-week low. The 10-year Treasury yields have been hovering at high levels for several months so the downward trend in response to Bessent’s selection was a net positive.
- RXR Inks One of Largest Offices Leases of 2024 in Manhattan
New York City office landlords were likely relieved to see a glimmer of hope in Manhattan’s office leasing market with news that law firm Ropes & Gray signed one of Manhattan’s largest office leases of the year with RXR. The law firm signed a 20-year lease to move its offices up Sixth Avenue and expand its office space from 300,000 to 430,000 square feet with an option to expand even further. Last year, RXR modified and extended its loan for the property, paying it down from $1.2 billion to $980 million and extending the debt maturity by five years. The space now occupied by Ropes & Gray at 1211 Sixth Ave. has a $1 billion mortgage that matures next August with a 300,000 square foot vacancy to fill by other tenants. In related office news, The Wall Street Journal just reported that office conversion into residential buildings is gaining traction as office vacancy rates rise and property values plunge. Nationally, over 70 conversions have already been completed this year, and even more (94 projects) are underway, led by NYC, Chicago, and Washington, DC.
Why It Matters: The office market is a story of winners and losers as tenants vacate space that they have outgrown to move to others that offer more space, a better location, or appealing amenities. This transfer of assets and leasing space will continue in the coming years as leases expire and loans mature. Some spaces will be filled by new tenants, and others will be redeveloped into alternative uses like residential developments.
- New Home Sales Fall 9.4% YoY in October
The U.S. Census Bureau and U.S. Department of Housing and Urban Development reported that new home sales in October fell in October to 610,000 from 738,000 in September. The October volume was a 9.4% decrease year over year and 17.3% below September. Overall, the national volume of new home sales continues to be hindered by affordability concerns and are expected to remain week until mortgage rates drop.
Why It Matters: Despite the monthly decline in October, there are growing areas of the U.S. that are seeing higher-than-average new home sales. These include metros like Dallas-Fort Worth and Houston that are experiencing above-average population growth. If the incoming administration opens up federal lands to homebuilders in an effort to kickstart the housing market, new home sales will likely start trending upward.
For commentary on these CRE developments and more, tune in to the LightBox CRE Weekly Digest podcast.
Did You Know of the Week
The TSA handled its busiest-ever Thanksgiving this year with an estimated 79.9 million people expected to travel at least 50 miles from home, and hotel occupancy rates reaching as high as 80% in popular destinations like New York City, Orlando, Miami, and Atlanta. And hotel bookings aren’t the only metric on the rise. Did you know that listings for hospitality assets in LightBox’s RCM platform increased 73% year over year in October and November combined compared to the corresponding months of 2023 with the majority of listings in California, Texas, and Colorado?
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