Mid Year Economic Outlook and CRE
On June 2, 2022, Coldwell Banker Commercial’s Senior Vice President and Managing Director, Dan Spiegel, hosted Lawrence Yun, chief economist for the National Association of REALTORS® (NAR) for an insightful and fascinating discussion where viewers learned how the American economy is performing at the midyear mark, important factors to consider and how it is affecting commercial real estate across all asset classes.
Some key takeaways from Lawrence Yun were:
- The current inflation rate is reflected in the volatile, rising gasoline prices nationwide.
- The lack of domestic oil drilling, rising interest rates and the ongoing Russia-Ukraine war will continue to impact gasoline prices negatively.
- Capitalization rates have been trending downward for all sectors due to general uncertainty.
- Multifamily is 5.1%
- Office is 7.0%
- Industrial is 6.3%
- Retail is 6.8%
- Investors stepping up acquisitions in all sectors in 2021 and early 2022.
- “Back to work” for office workers is currently a hybrid of onsite office attendance and work from home.
- Total payroll jobs, year to date, have nearly returned to pre-COVID numbers, with job recovery nationwide in general, though not all states are seeing this recovery.
- According to the Bureau of Labor Statistics COVID Supplement and 2019 American Community Survey, 13% of employees 16 years old and over are teleworking, and 21% of employees in management/professional/office support roles are teleworking.
- Office Leasing Activity
- Cities such as Austin, Texas, Palm Beach, Fla. and Durham, N.C. have seen a positive net absorption since 2020 Q2 as of March 26.
- Cities such as New York City, Los Angeles and San Francisco have seen a negative net absorption during the same timeframe.
- Crime rates in these cities, whether high or low, correlates to the office leasing activity.
- According to CoStar, 34% of metro areas in the U.S. have double-digit apartment asking rent growth with low vacancy rates.
- Household formation is developing ahead of new housing construction.
- Hotel and motel nightly rate at 23% growth, compensating for any declines from the previous year. People postponed vacations and are engaging in “revenge spending”.
- Online retail sales are still strong.
- 11% growth in pre-COVID years, 21% growth in 2020 and 15% growth in 2021.
- Retail sales (excluding online) are seeing a big recovery.
- 5% growth in pre-COVID years, -3% decline in 2020 and 20% growth in 2021.
- Wholesale inventories are booming, and retail inventories are recovering.
- “Just-in-case” inventory will increase demand for warehousing in the near future and look to mitigate current supply chain issues.