For the Week of Sept 2-6, 2024
Post Labor Day investors were grappling with a round of data that pointed to a softening job market and some retailer predictions of the end of the consumer’s resilience. Equities and bonds bounced around on the week’s news with tech stocks dragging the market down early in the week.
Here’s our latest top 5 list of last week’s biggest commercial real estate (CRE) developments and why they matter:
- Jobs report highlights moderating labor demand.
U.S. companies added the fewest jobs in August since the start of 2021, according to the latest Labor Department report. Unemployment dipped to 4.2% after the previous month’s 4.3% but the talk was about the reports showing weaker job openings and hirings from ADP, the Beige Book, and an independent report from Challenger, Gray & Christmas.
Why It Matters: U.S. firms seem to be holding on to their employees rather than resorting to layoffs, but fewer companies are hiring to fill vacant positions or simply reducing the number of open jobs. The labor market is an important harbinger of the overall economy and any signs of a weakening jobs market create concerns that recessionary conditions are taking root. In the coming weeks and months, jobs reports will deliver more clarity on whether this is a short-term blip or a longer-term, more concerning trend that the strong job creation momentum of the past year is starting to fade.
- First interest rate cut is around the corner.
All eyes are on the Fed as the September FOMC meeting approaches for what the market expects will be the first in a round of long-awaited interest rate cuts. In the latest news, Wells Fargo Senior Economist Charles Dougherty is optimistic the first cut could even be as high as 50 bps with more to follow in November and December.
Why It Matters: The first cut will deliver a strong psychological impact to investors and lenders, and a likely boost to Q4 activity as deals are penciled out under a new rate scenario. While most are expecting a quarter-point rate cut, a half-point cut is not out of the question if the Fed gets the sense that a more aggressive first chess move is warranted to jumpstart economic activity.
- MBA optimistically forecasts a 26% jump in CRE lending activity this year.
In another dose of promising news, the Mortgage Bankers Association (MBA) just rewrote its calendar year (CY) 2024 forecast for commercial and multifamily lending. The association expects total lending to come in at $539 billion this year, a 26% jump from $429 billion last year, and an increase from last year’s estimate of $246 billion.
Why It Matters: The MBA’s Q2 loan volume was up only 3% year over year, so this bullish forecast reflects an expectation of a much stronger 2nd half of the year. The Fed is ushering in a new phase of interest rate cuts and that shift, along with the large volume of loan maturities in the next few quarters, are expected to trigger an uptick in mortgage borrowing well above the low levels of the past two years.
- Just-released LightBox CRE Activity Index shows modest decline in August and encouraging strength YoY.
The numbers are in, and the August Index was 89.9. Although that was 2.5 points below July’s 92.4, it’s more telling that the Index gained a solid 9 points above where it was last August.
Why It Matters: The August dip compared to the prior month is not surprising given seasonal trends, but the dramatic year-over-year jump speaks to the growing strength in environmental due diligence, appraisal, and property listings activity compared to the much more tepid conditions in the market one year ago. This momentum came as a welcome development, and one that bodes well for strong dealmaking in Q4.
- Major multifamily transactions closed in Phoenix, Nashville, and Chicago.
Investors are actively shopping for strong multifamily deals. The week’s deals included the $152 million purchase of the Pearl Biltmore by Covenant Capital in Phoenix, and the $88 million deal for the Lodge Apartments in Nashville, notably a 27% uptick from the 2017 purchase price. In a Chicago suburb, Oak Residential bought the Mark Apartments at a price 32% above the 2018 purchase price.
Why It Matters: These transactions offer more evidence that investors are eager to place capital and that sellers are recognizing price appreciation, especially for properties located near major airports or growing suburban markets.
For commentary on these CRE developments and more, tune in to the LightBox CRE Weekly Digest podcast.
Did You Know of the Week
Did you know that the high point of the 3-year CRE Activity Index was 162.2 in February 2022, just before the first interest rate hike, and the low point was 48.2 just this past December?
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