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Commercial Real Estate Economic Update 11.10.2023

Featured Topics

  • WeWork Bankruptcy, CRE Impact

  • Commercial Property Prices

  • CRE Market Insights, October 2023

  • Interest Rate Decision

  • Financial Stability Risks

  • October Jobs Report

  • Decline in Apartment Starts Expected

  • Logistics Managers Index

  • Manufacturing Purchasing Managers’ Index (PMI)

  • US Personal Spending



• On November 6th, co-working trailblazer WeWork filed for Chapter 11 bankruptcy, bringing additional unease to an office sector battered from the residual effects of the remote-work revolution.

• Over the previous decade, including before the pandemic, many office landlords around the world looked to the co-working giant as the future of office life, with leasing to the firm proliferating across many global economic hubs. However, as those bets soured in recent years, owners have increasingly turned to debt financing to stay afloat, raising concerns that a reduction of leased space by WeWork could place a wave of distress on a sector already facing high vacancy rates.

• There are also concerns about the ripple effect of the bankruptcy on small and mid-sized banks, which are disproportionally exposed to commercial property debt on their balance sheets. Still, US banks remained highly liquid, limiting the risk of the CRE exposure to the broader financial system.

• Notably, many WeWork leases are in Class B buildings, which predictably have had a tougher challenge with occupancy compared to Class A buildings during the current downturn. This may increase the challenge that landlords will face in filling new vacancies. So far, WeWork has filed to terminate nearly 70 leases worldwide.


• According to the MSCI RCA Commercial Property Price Index (CPPI), all US commercial sectors posted annual price declines in September, matching August’s -9.0% year-over-year drop. However, average prices were flat month-over-month, potentially signaling that we are close to the cyclical nadir for commercial prices.

• The apartment sector posted the most significant year-over-year decline in CRE for the second straight month, but declines in the sector have eased in the third quarter compared to earlier this year. Apartment prices fell by -0.3% month-over-month and -12.8% year-over-year in September.

• The industrial sector, which has been the best-performing CRE sector during both the pandemic-era boom and the current market downturn, fell -0.8% annually but climbed 0.2% month-over-month from August. The directional shift of the sector in September may serve as another signal that commercial
prices are reaching their floor.

• Retail prices were down -0.1% from August and -6.9% year-over-year. Meanwhile, suburban offices fell -0.3% from August and -9.0% annually. CBD office prices were unchanged monthly but declined -5.6%


• The National Association of Realtors’ (NAR) monthly report on CRE insights notes that the commercial real estate market continues to experience rising vacancies and slowing rent growth in October but that labor market fundamentals and seasonal factors represent tailwinds that are keeping the sector stable.

• NAR notes that the multifamily segment has seen resurging demand in 2023 as mortgage rates mount, dampening homebuying activity. Net absorption in the sector has risen by 33% over the last 12 months, while construction unit deliveries are up 17% from last year.

• Rent prices in the industrial sector continue to expand and remain above pre-pandemic levels despite a recent deceleration in rent growth. Vacancy rates have moderated back towards pre-pandemic levels; however, this is primarily due to a 43% increase in square footage delivered over the past year.

• Retail sector vacancies now sit at a 10-year low of 4.1% as of September. Rent growth has eased but remains above pre-pandemic levels. Further, consumer spending remains strong despite higher goods prices, keeping the sector on solid footing.


• At its November 1st policy meeting, FOMC officials held interest rates unchanged at their target rate of 5.25% to 5.5%. The Fed has now held rates unchanged for two consecutive months, a first throughout its current tightening cycle that began in March 2022.

• While acknowledging the favorable trajectory of US inflation pressures, Fed Chair Jerome Powell refrained from claiming victory, indicating that the economy remains above the central bank target of a 2% long term average.

• Powell also cited the resiliency of the US economy, stating that taming inflation will likely require a slowdown in the labor market and economic growth. Real US GDP grew by 4.9% in the third quarter, its fastest pace of growth in nearly two years.

• Several Fed watchers and experts foresee the Fed holding rates at current levels well into next year, citing the economy’s ability to grow at current borrowing rates as a hedge against the downside risks of keeping rates higher for longer. Meanwhile, elevated inflation expectations suggest that rate cuts would be too risky of a move for policymakers to make in the short term as they attempt to re-anchor inflation expectations towards their 2% target.


• The October release of the Federal Reserve’s semi-annual Financial Stability Report notes that several aspects of the US economy remain on solid footing, including leverage in the financial system, funding risks, and borrowing by businesses and households. However, strains in the CRE industry, persistent
inflation, and geopolitical risks are the most significant near-term risks to the financial system.

• Despite the rise in debt servicing costs, the report notes that debt-to-GDP ratios among households and businesses remain close to historical averages.

• Price-to-earnings ratios among equities are elevated, but bond market risk premiums remain near the middle of their historical distribution, signaling low risk.

• Still, risks are rising in other areas. The Fed notes that a significant slowdown in US economic growth could dampen profits in non-financial businesses, including real estate. High leverage levels in these sectors could expose them to stress and defaults in a recession scenario.

• Geopolitical risks to global markets have increased. Russia’s ongoing war against Ukraine continues to impact energy and agriculture markets, and more recently, Hamas’ attack on Israel and the ensuing response risks spilling over into a broader Middle East conflict and could lead to adverse effects on global

• The banking system remains sound, according to the report, despite vulnerabilities exposed during the bank failures in the spring 2023. Most US banks remain highly liquid with capital ratios close to previous
decade averages.


• According to the Bureau of Labor Statistics, the US economy added 150,000 new jobs in October, the smallest monthly growth total since June. The unemployment rate ticked up marginally to 3.9%.

• Last month’s growth came in under the consensus forecast of 170,000 and is a sharp decline from a strong showing in September when firms added nearly 300,000 new payrolls.

• The Health Care (+58,000), Government (+51,000), and Construction (+23,000) sectors led all occupations in gains, while manufacturing posted a decline, in part due to the persistence of auto strikes during the month.

• Average hourly earnings increased by 0.2% month-over-month and 4.1% year-over-year in October. Annual wage growth has charted above inflation in consecutive months since May, giving workers a boost in real wages. Upcoming CPI data will confirm whether real wages have continued to grow in October.


• A recent survey conducted by John Burns Real Estate Consulting suggests that apartment developers expect starts to decline further over the next 12 months following a 40% decline in starts so far in 2023.

• The survey points to increasing debt cost challenges for developers, as construction pricing remains relatively unchanged from previous years, but higher interest rates raise project costs. According to the survey, developers would need a 10-20% decline in construction costs to offset higher debt financing

• Analyzing the report, Real Page SVP and Chief Economist Jay Parsons notes that the industry has recently enjoyed a generational high in apartment starts. Still, this phase is coming to a close as borrowing costs settle at new highs and price gains slow as supply catches up to demand.


• The Logistics Manager’s Index, a composite score that denotes expanding or contracting activity in the warehousing and transportation sector and a key proxy indicator for Industrial property activity, posted a third consecutive increase in September. It is the most robust performance for the sector since January.

• Warehousing prices slowed in September but continued to climb, while both warehouse and transportation capacity fell, signaling increased activity and demand relative to supply.

• Transportation prices fell but at their slowest rate since September 2022.

• Inventory levels have recently moved back into expansion after five consecutive months of contraction. It is to be seen whether the recent expansion is due to seasonal factors or a sign that the economy is picking back up again. Notably, month-ahead expectations by survey respondents in September were at
their strongest in 2023.


• The US ISM Manufacturing Purchasing Managers’ Index (PMI) dropped in October from a 10-month high in September, indicating further contraction in the US manufacturing sector.

• The contraction in new orders accelerated from the previous month and charted its 14th straight monthly decline. Survey respondents noted lower demand from both domestic and foreign markets.

• Production also slowed, with a sharp decline in the backlog of orders, partially offsetting a decline in demand for new products.

• Sector employment also contracted following an increase in September, while input prices fell for the sixth consecutive month.


• According to the Bureau of Economic Analysis, personal spending in the United States rose by 0.7% month-over-month in September, an increase from August and beating market expectations of a 0.5% growth rate.

• Spending on services rose sharply, increasing by $96.2 billion or 0.8% month-over-month. Within services, international travel, housing and utility services, healthcare, and air travel saw the most significant increases.

• Spending on goods also rose during the month, climbing by $42.5 billion, or 0.7% month-over-month. In the goods category, prescription drugs, motor vehicles, and parts contributed the most to September’s growth.


• (1) https://www.bloomberg.com/news/articles/2023-11-07/wework-s-collapse-is-latest-blow-to-newyork-san-francisco-office-markets
• (2) https://info.msci.com/l/36252/2023-10-18/xzzn44/36252/1697663732SmMj3Ch7/2310_RCACPPI_
• (3) https://www.nar.realtor/commercial-real-estate-market-insights/october-2023-commercial-realestate-market-insights
• (4) https://www.federalreserve.gov/newsevents/pressreleases/monetary20231101a.htm
• (5) https://www.federalreserve.gov/publications/2023-october-financial-stability-report-overview.htm
• (6) https://www.bls.gov/news.release/empsit.nr0.htm
• (7) https://yieldpro.com/2023/11/developers-expect-further-decline-in-apartmentstarts/#:~:text=Apartment%20developers%20expect%20a%20further,Investor%20Survey%20
• (8) https://www.the-lmi.com/
• (9) https://www.ismworld.org/
• (10) https://www.bea.gov/news/2023/personal-income-and-outlays-september-2023

Commercial Real Estate Economic Update 02.24.2023

Featured Topics

    • Homebuilding Sentiment Rises

    • FED Meeting Minutes

    • A Business Travel Rebound

    • Independent Landlord Rental Performance

    • Industrial Originations Fall

    • MSCI-RCA Property Price Index

    • CPI Inflation

    • Philadelphia FED Manufacturing Index

    • New Residential Construction

    • US Retail Sales

Economic Update 02.24.23 – (Download Full PDF)


• According to the latest data from the National Association of Home Builders (NAHB), homebuilding confidence is on the rise. The NAHB/Wells Fargo Housing Market Index (HMI) rose seven index points to a level of 42, its highest reading since September and the most significant monthly increase in the index since June 2013.

• Homebuilder sentiment registered at 81 one year ago, but started to fall as mortgage rates and other borrowing costs slowed demand and hindered supply in 2022. While index levels below 50 are considered in ‘pessimistic’ territory, sentiment had fallen to a low of 31 in December.

• According to analysts at NAHB, the uptick in sentiment reflects recent incremental gains in housing affordability amid a persistent housing shortage.


• Despite reducing their pace of rate increases in January, leading to increased market optimism, recently released minutes from the FOMC’s January meeting show that most officials remain “highly” concerned about inflation.

• The resilience of labor market tightness has some FOMC members concerned about the upward pressure that wages may continue to place on broader prices. Officials note that while recent monthly data has warranted a slowing of their tightening efforts, they will need “substantially more” evidence of slowing inflation across the board before halting rate increases.

• Notably, a “few” members expressed a need to maintain a 50 basis point increase in January. FOMC members have converged in their economic projections over the past several months, so a crack in the consensus could be a significant signal about the uncertainty of our current economic picture.

• As of February 23rd, 73% of the market expects a 25 basis point increase at the FOMC’s March meeting, while 27% expect a 50 basis point hike. One week ago, before the minutes were released, expectations at these levels were 85% and 15%, respectively.


• A recent report by Placer Labs studying foot traffic activity for the four major business travel sectors — airports, trains/buses, convention centers, and hotels—found that hotels and airports have climbed past pre-pandemic levels. In contrast, trains/buses and convention centers continue to recover.

• The report shows hotels have experienced the most robust post-pandemic recovery (using a 2019 baseline). As COVID shut down most travel activity in April 2020, hotel foot traffic dropped an unprecedented 97% from its January 2019 level. The sector recovered as high as 62% above pre-pandemic levels by July 2021

• Airport traffic, which fell by 93% in April 2020, similarly recovered much of its activity by Summer of 2021 but climbed as high as 23% by July 2022.

• Foot traffic at train and bus stops as well as at convention centers, has yet to recover 2019 activity levels. In July 2022, train and bus stop traffic hit its post-pandemic peak at -6% below pre-pandemic levels, while convention centers peaked in April 2022, down -11%.

• All four major business travel sectors saw activity decline below pre-pandemic levels by the end of 2022, reflecting a broader reduction in business travel expenses amid heightened inflation and recession fears.


• The on-time payment rate in independently operated rental units improved by 197 bps between January and February, coming in at 83.4% and reaching a new post-pandemic high, according to the latest Independent Landlord Rental Performance Report by Chandan Economics. It was the fifth consecutive month that average on-time rent collections have held above 81%, the first in the history of the dataset.

• Of the states with at least 500 tracked units in the RentRedi-Chandan Economics sample, Colorado holds the highest payment rate in the country in February. 91.4% of independently operating units in Colorado have paid their rent on time this month. Washington (91.1%) and Massachusetts (89.5%) are close behind.

• Analyzing performance trends at different rental price points, units with monthly rents below $1,000 continue to register the lowest average on-time payment rate through February, coming in at 82.5%. Upper middle-priced rental units (charging between $2,000 and $2,499 per month) perform the strongest, with a February on-time payment rate of 86.5%. On-time payment rates for all prices rose or remained level from the previous month in February.

• 2–4-unit rental properties held the highest on-time payment rates of all sub-property types in February, coming in at 84.2% — level with January.


• According to an analysis by the Mortgage Bankers Association (MBA), originations fell by 54% in Q4 2022, led by a decline in financing for Industrial projects.

• Higher borrowing costs brought forward by the Fed’s monetary tightening have impacted demand levels across all Commercial Real Estate. Still, it has had an outsized impact on Industrial, which experienced the best pandemic-era performance across the major property types. According to MBA, the dollar volume of loans for Industrial properties fell 69% year-over-year through Q4 2022.

• In addition to the higher borrowing costs, uncertainty about the direction of consumer spending and retail markets also affects transaction demand

• Office properties had the second steepest fall through Q4, with lending falling by 56%. Multifamily lending fell by 52%, Hotel fell by 46%, and Retail declined by 44%.


• Commercial real estate prices fell 4.8% year-over-year and 2.7% month-over-month through January, according to the latest national all-property index released by MSCI-RCA. It was the steepest annual fall in the all-property index since 2010.

• Higher borrowing costs remain the main culprit as deal activity slows, pushing pricing lower. Price growth slowed across all major property subtypes during January.

• Industrial registered the only monthly price increase in January, following December’s trend.

• Apartments posted the largest decline across property subtypes, falling 2.8% month-over-month and down 4.6% year-over-year.

• Retail prices fell 0.9% month-over-month in January and 0.1% year-over-year.

• Office prices are down 0.8% month-over-month and 0.7% year-over-year through January. Suburban offices were down 1.1% month-over-month and 0.5% year-over-year, while CBD Office held steady from December but fell 0.9% year-over-year.

• Prices in the six major gateway markets tracked by MSCI-RCA posted their sharpest annual decline since June 2010, falling by 6.9% year-over-year, and registered their eighth consecutive monthly decline. Meanwhile, non-major metros fell 2.0% year-over-year, with prices falling 1.8% from the month before.


• The Consumer Price Index (CPI) rose 6.4% year-over-year and 0.5% month-over-month through January, according to the latest numbers from the Bureau of Labor Statistics. The annual inflation rate has fallen for seven consecutive months, though month-over-month inflation was slightly higher than in December.

• Core CPI, which removes food and energy prices from the calculation and is more closely tied to monetary policy decisions, rose 5.6% over the past 12 months and 0.4% between December and January.

• Used cars and trucks led all price declines on both a monthly and yearly basis, dropping -1.9% month-over-month and 11.6% year-over-year.

• Fuel oil and medical care services also saw noteworthy declines to start the year, falling 1.2% and 0.7% month-over-month, respectively. However, fuel oil remains a significant contributor to annual price pressures, rising 27.7% year-over-year, while gas as a utility is close behind at 26.7%.


• According to data from the latest Philadelphia Fed Manufacturing Index, manufacturing activity is to fall. The barometer fell by 24.3% in February, almost triple its January decline of 8.9%. Markets had expected a 7.4% decline.

• February was the lowest index reading for the Philly Fed index since May 2020 and was the sixth consecutive monthly decline in manufacturing activity.

• There are three components of the index, one that measures overall activity, one that measures new orders, and one that measures shipments. The shipments subindex was the only one that registered a positive result in February, though at tepid levels.

• Forward-looking indicators were more positive, such as expectations for growth and prices over the six months — but remained modest from a historical perspective.


• Housing permits for privately-owned housing units experienced a slight rise in January from a month earlier, climbing 0.1% to a seasonally adjusted annual rate of 1.33 million, according to the latest data from the US Census Bureau and HUD. Permits remain 27.3% below their January 2022 level.

• Housing starts in January fell by 4.5% month-over-month to a seasonally adjusted annual rate of 1.30 million. Starts are down by 21.4% over the last 12 months.

• Housing completions rose 1.0% month-over-month in January to a seasonally adjusted annual rate of 1.40 million and are up 12.8% year-over-year.

• While slowing homebuying demand and falling prices have increased housing affordability lately, tepid permits and starts have held supply low, failing to alleviate the effect of the housing shortage.


• According to advance estimates from the US Census Bureau, US retail and food service sales climbed 3.0% month-over-month in January to a seasonally adjusted $697.0 billion. Sales are up by 6.4% year-over-year.

• January represented the largest monthly increase in sales since May 2021 and came after a 1.1% decline in December. The annual increase in sales is above levels seen in the previous two months but remains well below the gains seen over the past two years as activity rebounded from early-pandemic lows.

• Separating Retail trade sales from the total, sales were up 2.3% month-over-month and 3.9% year-over-year through January.

• Food services and drinking places are up by 25.0% over the past 12 months, while general merchandising stores have seen sales climb by 4.5% over the past 12 months.



• (1) https://www.nahb.org/blog

• (2) https://www.federalreserve.gov/monetarypolicy/fomcminutes20230201.htm

• (3) https://go.placer.ai/library/navigating-a-new-normal-in-business-travelcommutes?submissionGuid=11055299-e0be-4a53-8e59-6bcdd8534d47

• (4) https://www.chandan.com/independent-landlord-rental-performance-report

• (5) https://www.costar.com/article/1225048335/commercial-real-estate-lending-drop-steepens-ledlower-by-industrial-financing

• (6) https://www.msci.com/research-and-insights/market-insights

• (7) https://www.bls.gov/news.release/cpi.nr0.htm

• (8) https://www.philadelphiafed.org/surveys-and-data/regional-economic-analysis/manufacturingbusiness-outlook-survey

• (9) https://www.census.gov/construction/nrc/pdf/newresconst.pdf

• (10) https://www.census.gov/retail/marts/www/marts_current.pdf

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View More Economic Updates:

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Economic Report 9.9.2022

Economic Report 8.26.2022

Economic Report 5.13.2022

Economic Report 3.18.2022

Economic Report 2.25.2022

Commercial Real Estate Economic Update 02.10.2023

Featured Topics

  • January Jobs Report

  • FOMC Interest Rate Decision

  • Jerome Powell Statements

  • Housing Affordability Index

  • Freddie Mac Mortgage Market Index

  • Logistic Managers Index

  • CMBS Delinquencies Fall In January

  • VTS Office Demand Index

  • MSCI 2023 Trends To Watch

  • Economic Optimism

Economic Update 02.10.23 – (Download Full PDF)


• According to the Bureau of Labor Statistics, the US economy added 517,000 jobs in January while the unemployment rate was little changed at 3.4%. The number of unemployed persons was also little changed at 5.7 million.

• On the surface, the January report registered way above most industry expectations, with some observers concerned that the Federal Reserve may need to continue rate increases for longer than markets are anticipating. However, January’s total is likely to be significantly revised downward following adjustments, as is historically common during January.

• Notably, January’s significant payroll increase followed the announcement of massive layoffs by several tech giants, including Google and Microsoft — while corporate America also frets about the risk of a looming US debt ceiling limit.


• On February 1st, the Federal Reserve’s policy-setting committee raised their target Federal Funds Rate (FFR) range by 25 basis points to 4.50%-4.75%, slowing their speed of rate increases after four consecutive 75 basis point hikes and one 50 basis point hike in December.

• The FOMC’s policy decision arrives after weeks of falling leading inflation indicators. However, several macroeconomic indicators remain far from recession territory, convincing many officials to stay committed to additional increases and holding rates higher for longer if needed.

• Based on data from the Chicago Mercantile Exchange’s Fed Watch tool, most market watchers anticipate another 25 basis point hike at the FOMC’s next meeting in March.


• In his first public press conference since January’s 25 basis-point hike, Federal Reserve Chair Jerome Powell claimed that the Fed still has a “significant road ahead” to bring down inflation, despite the FOMC recently slowing their pace of rate hikes.

• Powell’s comments came just a few days after the release of the January jobs report, which showed higher-than-expected payroll growth and an unemployment rate pushed to its lowest level since 1969.

• Powell suggested that several more rate increases are likely on the horizon, though he did not indicate what the pace of the increases may be. He also states that the longer-run Fed Funds rate will likely end up higher than where markets are currently pricing.


• According to the latest Housing Affordability Index by the National Association of Realtors, housing affordability rose in December for the second consecutive month, following consecutive declines in September and October.

• The index reflects how much a “typical” family can afford a “typical” home, defined as a family earning the median family income and an existing single-family home at the national median price, respectively. The median-priced existing single-family home has declined for seven consecutive months, while the median family income has risen for 12 straight months.

• Regionally, housing affordability is highest in the Midwest, followed by the Northeast, while the South and West were less affordable. All regions have seen affordability rates fall precipitously over the last year.


• According to Freddie Mac, mortgage rates rose slightly during the week ending on February 9th.

• The 30-year fixed-rate mortgage ticked up to an average of 6.12% as of February 9th, up three basis points from last week. The 15-year fixed rate mortgage averaged 5.25%, up from 5.14% the week before.

• Mortgage rates remain well above their levels from a year ago as the Federal Reserve continues its monetary tightening actions in an effort to calm US inflation. In recent weeks, mortgage applications have risen significantly as rates began to dampen slightly in January. The recent uptick may be a boon to homebuying markets as consumer interest grows right in time for the busy spring season.


• The Logistics Managers’ Index (LMI), a diffusion index where above 50 signals expansion in transportation and warehousing activity and below 50 is a contraction, increased to 57.6 in January, up from 54.6 the month before and is the index’s second consecutive monthly increase.

• The consecutive increases follow seven declines in the LMI over the past eight months. According to the report, the uptick was primarily driven by the transfer of overstocked inventories away from upstream wholesalers toward downstream retailers.

• Notably, a temporary increase in the LMI in September 2022 came amid supply chains that were newly flushed with high inventory. Such fundamentals at the time signaled that goods were merely moving from place to place, and during the previous two LMI increases, inventories were much lower. The consistency may be showing the beginning of a trend toward sector growth.

• According to the report, another critical development for global warehousing and transporting activity is the reopening of China’s economy. Over the past several years, supply chains had to account for the “start-stop” nature of Chinese manufacturers. However, an economic surge in January after an end to the nation’s “zero-COVID” policies is sparking new life and certainty in logistics markets.


• According to data from Trepp, the CMBS delinquency rate declined in January 2023, following several months of only tepid increases despite anticipated trouble arising from rapidly rising interest rates.

• The Trepp CMBS delinquency rate fell ten basis points in January to 2.94, the second-lowest reading since the pandemic began. Annually, delinquencies are down by 124 basis points.

• Tracking delinquencies by sector, Industrial maintains the lowest rate of 0.40%, falling slightly month-over-month. Multifamily follows with a delinquency rate of 1.56% in January, down from 2.17% in December. Office registered a 1.83% delinquency rate in January, a 30 basis points increase and the only sector outside of lodging that saw a month-over-month increase. Lodging delinquencies stand at 4.44%, up from 4.40% in December. Meanwhile, Retail maintains the highest delinquency rate by sector at 6.58% but is down nearly 40 basis points from the month before.


• Office demand finished 2022 down 20.7% year-over-year, according to the latest Office Demand Index by VTS (VODI).

• Notable upticks in office demand occurred during the Spring and Fall of 2022; however, it was not enough to offset other seasonal declines.

• According to VTS, office demand has strongly correlated with average job postings over the past year. Washington DC exemplified this, with the local VODI increasing 21.4% year-over-year through December 2022 as the metro’s concentration of government, nonprofit, and professional services employment helped keep demand high.

• Remote work remains the most significant challenge to office sector growth, though its prevalence has declined. Work-from-home prevalence has reduced from roughly 5% to 30% during the early days of the pandemic to a current range of 40 to 60%. The variation in the frequency of occupations using remote work has narrowed while remote work rates have stabilized at current levels.


• A new report by MSCI summarizes several key trends in Real Estate that the authors believe will be pertinent in 2023, including the importance of price expectations for market liquidity and a more critical role for market fundamentals.

• Higher interest rates are creating repricing opportunities for many commercial real estate assets sold during the previous decade’s low-yield environment. As a result, there is a growing gap in price expectations between buyers and sellers, accelerating the slowdown in transaction volume. How this gap shifts will be vital in evaluating likely 2023 outcomes.

• Similarly, as the Fed tightens interest rates, yield performance is no longer accelerating market returns, forcing managers to focus on retaining tenants and operating efficiently.


• Economic optimism in the US increased to a ten-month high in February, according to an Index developed by Investor’s Business Daily and Technometrica Market Intelligence.

• The index is based on a nationwide survey of 900 adults and measures the six-month forward-looking economic outlook, where a reading above 50 indicated optimism and one below 50 indicated pessimism.

• February’s Economic Optimism Index ticked up to 45.1 from 42.3 in January. Though the index remains in “pessimistic” territory, the percentage of consumers who believe that the US is currently in recession or that their personal finances are at risk saw month-over-month declines.

• Other key items included climate risk, which has proven difficult for investors to price, but rising evidence shows that buildings that meet specific sustainability standards sell at high premiums. Down-market resilience and due diligence in using data were also important developments to keep an eye on.


•(1) https://www.bls.gov/news.release/empsit.nr0.htm


• (3) https://thehill.com/finance/3847680-heres-why-the-strong-january-jobs-report-will-push-interestrates-higher/

• (4) https://www.nar.realtor/research-and-statistics/housing-statistics/housing-affordability-index/ methodology

• (5) https://freddiemac.gcs-web.com/news-releases/news-release-details/mortgage-rates-increaseslightly-1

• (6) https://www.the-lmi.com/

• (7) https://www.trepp.com/instantly-access-delinquency-report-january-2023?utm_ campaign=Delinquency%20Report&utm_medium=email&_hsenc=p2ANqtz-8Z7gFrQUDi9GPmrvVWBjUKEiUBV0HOrlsUTxQu-aXkawu8O8iVUn0ETjXmHKmL8HlHbVaC1-_sDt9Cf0ve3_W_wiE2Q&_ hsmi=244332373&utm_content=244332373&utm_source=hs_email&hsCtaTracking=633d8656-b8ab4cee-aa48-48c94fb2d86d%7C3d1edecf-80f8-4c7a-83e6-cf60e3259855

• (8) https://www.vts.com/

• (9) https://www.msci.com/research-and-insights/2023-trends-to-watch-in-real-assets?utm_ source=onemsci&utm_medium=email&utm_campaign=msci-weekly-2023-2-9

• (10) https://www.bloomberg.com/press-releases/2023-02-07/february-s-ibd-tipp-poll-showseconomic-optimism-on-the-rise

©2022 SVN International Corp. All Rights Reserved. SVN and the SVN COMMERCIAL REAL ESTATE ADVISORS logos are registered service marks of SVN International Corp. All SVN® offices are independently owned and operated. This is not a franchise offering. A franchise offering can only be made through a Franchise Disclosure Document.

View More Economic Updates:

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Featured Topics

  • GDP

  • Mortgage Applications

  • Interest Rate Expectations

  • New Home Sales

  • Independent Landlord Rental Performance

  • MSCI-RCA Property Price Index

  • CMBS Special Servicing Rate

  • Millennial Homebuying Demand

  • WFH Commutes

  • Consumer Sentiment

Economic Update 01.27.23 – (Download Full PDF)

1. GDP

• Real GDP increased at a 2.9% annual rate in Q4 2022, according to the advance estimate by the Bureau of Economic Analysis. Economic output has slowed from Q3 2022 when real GDP grew at a 3.2% annual rate.

• While recession fears have amplified heading into 2023, economic output has remained robust from a historical standpoint given the Fed’s aggressive monetary tightening measures. The US has now recovered all output lost during the pandemic, with the end-of-year output in 2022 registering a 2.1% annual growth rate.

• Driving the increase in output during Q4 was increased in private inventory investment, consumption, government spending, and nonresidential fixed investment. These increases were partly offset by declines in residential fixed investment and exports.

• Manufacturing, specifically petroleum/coal products, chemicals, as well as mining, utilities, and construction, led to increases in private inventory investment.

• An increase in both goods and services spending contributed to the growth of consumer spending.

• Growth in intellectual property products propelled nonresidential fixed investment during Q4 while falling single-family construction and industry commissions caused a drag on residential fixed investment.


• Mortgage applications climbed by 7% during the week ending on January 20th, 2023, following a massive 27.9% surge the week before, according to the Mortgage Bankers Association.

• Mortgage application demand fell significantly during the second half of 2022 as mortgage rates rose steeply. After falling for much of December, mortgage applications increased to begin 2023 and have increased sharply throughout January.

• Refinance applications rose 14.6% during the week ending January 20th, while purchase applications rose 3.4%.

• While homebuying demand remains relatively weak compared to early-cycle levels, cooling prices and borrowing costs could draw in many households that remained sidelined in recent months due to affordability constraints.


• Federal Funds futures pricing data shows an overwhelming 98% likelihood of a 25 basis points hike at the FOMC’s January 31st-Febuary 1st meeting, according to forecasts compiled by the Chicago Mercantile Exchange.

• Inflation has slowed in recent months, leading to a growing consensus that the Federal Reserve will soon reduce the pace of rate hikes, though not stop them entirely. Consumer price growth remains well above the central bank’s 2% target and officials have signaled the need to continue restrictive policy until price pressures calm.

• In a recent statement, Fed Vice Chair Lael Brainard acknowledged that labor supply remains constrained, but that demand has cooled in recent months and a 1970s-style wage-price spiral hadn’t materialized as some feared. Conversely, Brainard spoke of a “price-price” spiral taking place as retail markup growth exceeds input price growth. Cooling demand and loosening supply chain constraints, she hopes, will continue to lead to disinflationary pressures on goods.


• New sales of single-family homes climbed for the third consecutive month, according to the latest data from the US Census Bureau.

• Home sales rose 2.3% in December to a seasonally adjusted annualized rate of 616k units, up from the revised 602k units registered in November. Falling mortgage rates have increased homebuying demand in recent weeks, evident in a recent increase in mortgage applications.

• Home sales continue to be lower on a year-over-year basis, dropping 26.6% over the past. twelve months.

• Sales rose in the more “affordable” regions of the Midwest and South while falling in the Northeast and West.


• The on-time collection rate for independently operated residential properties improved by 6 basis points between December and January, landing at 81.5%, according to the latest Independent Landlord Rental Performance Report by Chandan Economics. It was the fourth consecutive month that average on-time rent collections have held above 81%, the first in the history of the dataset.

• Gateway markets (New York, Los Angeles, San Francisco, Washington, DC, Houston, Dallas, Chicago, and Boston) have maintained higher on-time payment rates than units located elsewhere for thirteen consecutive months through January 2023. The current on-time collection rate for gateway metros stands at 84.2% through January 15th compared to 81.0% in non-gateway metros.

• The on-time payment rate remained higher for units in the Sun Belt compared to units located elsewhere for the second consecutive month, reaching 82.4%

• Analyzing performance trends at different rental price points, units with monthly rents below $1,000 continue to register the lowest average on-time payment rate through January 2022, coming in at 79.8%. Upper middle-priced rental units (charging between $2,000 and $2499 per month) perform the strongest with a January on-time payment rate of 85.6%. High-priced rentals, defined as those charging more than $2,500 are a close second, with an on-time payment rate of 8.5% in January.

• 2–4-unit rental properties held the highest on-time payment rates of all sub-property types in January, coming in at 82.4%.


• Commercial real estate prices rose 0.9% year-over-year through December, with prices falling 1.2% month over month according to the latest national all-property index released by MSCI RCA.

• Price growth slowed across all property subtypes during the fourth quarter of 2022 but remained mostly positive, as higher borrowing costs dampened transaction activity.

• Industrial registered the only monthly price increase in December; however, both the warehouse and flex sales have fallen on a year-over-year basis. —18% and 2.0%, respectively.

• Apartments prices fell 1.9% month-over-month in December but climbed 1.8% year-over-year.

• Retail price growth slowed to 3.1% year-over-year and fell 0.5% monthly in December. Still, retail centers saw double-digit annual sales growth to end the year. Shop sales fell sharply in December, with the dollar volume of new deals declining by 29% from the month prior.

• Office prices rose 2.9% year-over-year in December while falling 0.4% month-over-month. Year-over-year, the Hotel sector saw both positive pricing trends and sales growth, rising by 7.2% and 5.0% respectively.

• Prices in the six major gateway markets tracked by MSCI-RCA continued to slow in December, falling by 2.1% year-over-year and registering its seven consecutive monthly declines. Meanwhile, non-major metros slowed to 2.6% year-over-year, with prices falling 1.0% from the month before.


• The CMBS special servicing rate tracked by Trepp fell 3 basis points in December, its first monthly decline in the past six months.

• Special serving, which typically increases during economic downturns, fell significantly in recent years as pandemic constraints eased. However, rates began to rise during the second half of 2022 as borrowing costs rose amid weakening demand.

• Lodging saw the largest decline in special servicing, falling 32 basis points from November. Lodging, Apartment, and Retail special service rates all declined in December while Office special serving was unchanged and Industrial rose slightly.

• Office accounted for 85% of new special servicing transfers, but loans coming out of special serving largely offset this.


• A new survey by Real Estate Witch reports that 92% of millennials have indicated that inflation has either delayed or significantly impacted their buying plans.

• While the relationship comes as little surprise, Baby Boomers, who have greater wealth on average, are more than twice as likely than millennials to say that their decisions have not been impacted by inflation.

• Specifying those challenges, 59% of millennial respondents claim to be saving more for a home, 36% plan to spend more on a home, 28% are delaying plans for now, 26% are buying a fixer upper, while 25% have opted into buying a smaller home.


• A review by the National Bureau of Economic Research estimates that would-be-commuters save 72 minutes per day on average when working from home.

• Despite growing concerns about productivity shortfalls brought forward by work-from-home adoption, data shows that much of saved commute time has been funneled into work.

• Roughly 40% of remote workers claim to use previous travel time to work a job or side hustle. 34% use this time to relax or exercise, while about 11% use the time to take care of loved ones.

• The paper also noted the various “costs” saved from work from home adoption, including direct ones such as money for gas or public transit, as well indirect ones like personal grooming for work.


• Preliminary January data for the University of Michigan’s Survey of Consumers showed consumer sentiment rising for the second consecutive month, climbing 8% above December’s level while remaining about 4% lower than this time last year.

• From a historical perspective, sentiment remains extremely low as consumers battle high inflation, but as inflationary pressures have eased in recent months, sentiment has improved.

• Individual assessments of their own personal finances climbed 16% in January to its highest reading in eight months. While consumers’ short-run economic outlook fell slightly in January, the long-run outlook rose by 7%, reaching its highest level in three months.

• Year ahead inflation expectations are also on the downtrend, falling for the fourth straight month and reaching its lowest point since April 2021. However, according to the analysis, expectations remain above the 2.3-3.0% inflation forecasts that was experienced in the years leading up to the pandemic.


• (1) https://www.bea.gov/news/2023/gross-domestic-product-fourth-quarter-and-year-2022-advanceestimate

• (2) https://www.mba.org/news-and-research/newsroom/news/2023/01/25/mortgage-applicationsincrease-in-latest-mba-weekly-survey

• (3) https://www.newyorkfed.org/microeconomics/sce#/

• (4) https://www.census.gov/economic-indicators/#home_sales

• (5) https://www.chandan.com/independent-landlord-rental-performance-report • (6) https://www.msci.com/research-and-insights/market-insights

• (7) https://www.connectcre.com/stories/office-dominates-new-transfers-as-cmbs-special-servicingdeclines-in-december/?utm_medium=email&_hsmi=242560693&utm_content=242560693&utm_ source=hs_email

• (8) https://www.realestatewitch.com/2023-millennial-home-buyer-report/#inflation

• (9) https://www.nber.org/system/files/working_papers/w30866/w30866.pdf

• (10) http://www.sca.isr.umich.edu/

©2022 SVN International Corp. All Rights Reserved. SVN and the SVN COMMERCIAL REAL ESTATE ADVISORS logos are registered service marks of SVN International Corp. All SVN® offices are independently owned and operated. This is not a franchise offering. A franchise offering can only be made through a Franchise Disclosure Document.

View More Economic Updates:

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Commercial Real Estate Economic Update 01.13.2023

Featured Topics

  • CPI Inflation

  • Inflation Expectations

  • U-Haul Moving Data

  • ATTOM 2023 State of Real Estate Investing

  • New Trends in Industrial Real Estate

  • SFIB Small Business Survey

  • Logistics Managers Index

  • FY 2023 Appropriations Bill

  • World Bank 2023 Global Growth Forecast

  • December Jobs ReportCommercial Real Estate

Economic Update 01.13.23 – (Download Full PDF)


• The Consumer Price Index (CPI) rose 6.5% year-over-year and just 0.1% month-over-month, according to the latest numbers from the Bureau of Labor Statistics — relatively in line with most industry estimates. The annual inflation rate has now fallen for six consecutive months.

• Core CPI, which removes food and energy prices from the calculation and is more closely tied to monetary policy decisions, rose 5.7% over the past 12 months and 0.3% between November and December.

• Gasoline led all price declines, dropping -9.4% month-over-month and -1.5% year-over-year. Used cars and trucks also saw significant cooling, falling -2.5% month-over-month and -8.8% year-over-year.

• Food and shelter costs continue to rise, with the former appearing to decelerate from 2022 price pressures. The food index has risen 10.4% year-over-year, but after reaching a 1.1% monthly increase in July 2022, food costs inflation has steadily slowed, registering a 0.3% increase in December.

• Stocks rose following the news, as markets hope these data signal a peaking of US inflation and a potential upcoming slowdown in the Fed’s interest rate hikes.


• Results from the New York Fed’s latest Survey of Consumer Expectations, taken in December, show consumers are growing more optimistic about the inflation outlook. Respondents expect one-year inflation to grow at 5.0% in the 12 months ahead, down 0.2% from the November survey and the lowest survey result since July 2021.

• Economists view consumer expectations as essential in actual inflation’s outcome, as they influence consumer behavior that may self-fulfill the economic effect they predict. The New York Fed’s meter reached a record high of 6.8% in June 2022 amid a 40-year high in inflation.

• Consumers expect gas prices to rise 4.1% over the next 12 months while projecting food prices will grow 7.6% over the same period. Projections for both figures declined month-over-month.

• Longer-term inflation expectations were little changed.


• End-of-year transaction data from U-Haul showed a continuation of migration towards the southeast and southwest United States in 2022 — a continuation of trends that were present before but accelerated during the pandemic.

• U-Haul’s index calculates its rankings based on a net gain of one-way truck arrivals in each state or city. Texas ranked #1 for the second year in a row and the fifth time since 2016. Florida ranked second — its seventh consecutive year in the top 3. South Carolina was ranked 3rd.

• California and Illinois ranked the lowest on the index for the third consecutive year. In addition to New York, California and Illinois ranked the highest in truck demand, as more people leave areas on the west coast, midwest, and northeast.


• In their look-ahead report for 2023, ATTOM signals caution in specific sectors while taking note of the shifting strategies taking place among investors that are leading to new opportunities.

• Focusing on “fix-and-flip” investors, the report notes that as higher financing, labor, and material costs cause these investors’ profit margins to compress, some are shifting to wholesales of properties to rental property buyers or a shift to “fix-and-hold” until market conditions improve.

• The report notes that as consumers enter their own holding pattern, opting to rent instead of buy as home prices and mortgage rates strain affordability, shifting to “fix-and-hold” strategies is likely a sensible approach.

• ATTOM also projects foreclosures to remain below pre-pandemic levels throughout most of 2023, preventing an influx of distressed properties from hitting the market and pushing downward on prices.


• Breaking down Industrial’s newest trends, Moody’s recently analyzed data showing a shift from location-centric to labor-centric capital spending.

• The analysis notes that as labor market tightness and inflationary pressures hold, it is becoming increasingly crucial for warehouse and distribution properties to be near qualified labor.

• Furthermore, prospective tenants of Industrial properties are also becoming more concerned about the physical makeup of the property, reflecting the higher-implied cost of employee retention. Moody’s suggests that at current wage rates for warehouse and distribution jobs, employees generally tolerate a 20-minute commute time before there is a greater demand for pay and benefits. To balance this trade-off, firms seek spaces large enough to accommodate added amenities for workers, including outdoor spaces for breaks.

• Of course, location still matters outside of the context of labor. Proximity to population centers remains among firms’ most critical factors when seeking new space. Other key factors include ceiling height, power supply, and buildings that account for ESG concerns.


• The National Federation of Independent Businesses Small Business Optimism Index declined 2.1 points in December to 89.8. its twelfth consecutive month below the index’s 49-year average (88).

• A net negative 51% of owners expect business conditions to improve over the next six months. Future expectations have now fallen consecutively since January.

• 32% of respondents report inflation as their more pressing issue for operating their businesses, with a 68% share of that group reporting input costs as the main culprit compared to the 34% who say labor costs as more pressing. Still, the net percent of owners who raised average product prices fell by 8 points in December to a net 43% (seasonally adjusted), the lowest since May 2021.

• 55% of small firms reported capital outlays in the previous six months, unchanged from the previous one. Within those who’ve spent capital in the past six months, just 11% improved or expanded facilities, down 1 point from November, while just 4% acquired new buildings or land for expansion, also down 1 point from November.


• The Logistics Managers’ Index (LMI), a diffusion index where above 50 signals expansion and below is contraction, increased to 54.6 in December, up from 53.6 the month before, which had been the second-lowest reading on record. The uptick was in-line with the typical holiday season that necessitates expansion in the space by many retailers.

• Inventory levels are increasing (57.3), but at a slower rate than much of 2022. Inventory was higher for downstream firms (62.8) than upstream firms (53.3) in December, with the former holding more stock in warehousing in preparation for the holiday season.

• Transportation capacity fell in December to an index reading of 48.1, its first contraction since April 2020. Meanwhile, transportation prices fell to a reading of 36.9, representing the sharpest rate of contraction on record.


• At the end of 2022, Congress successfully passed its fiscal year 2023 spending bill, which included, among others, several provisions that may impact commercial real estate development.

• While absent of significant tax implications, the bill includes a 10.6% increase in funding for the Department of Housing and Urban Development, with much of the increase funding additional tenant-based rental assistance in the form of housing assistance and housing choice vouchers.

• The bill also provides funding to cover the renewal of all existing contracts utilizing its Project-Based Rental Assistance program and a massive 24.2% increase in the Community Development Fund (CDF).

• Within CDF funding includes $85 million for a new program, “Yes In My Back Yard,” which incentivizes housing development by reducing exclusionary policies, including zoning and density restrictions.


• Global growth is expected to fall to its third-weakest pace in nearly three decades, dwarfed only by the 2009 (Great Financial Crisis) and 2020 (Covid-19 Pandemic) global recessions, according to the World Bank.

• Weakness within the three major centers of global growth — The US, the Euro area, and China — is expected to spread into major economies as foreign investment and import growth from those nations stall.

• Moreover, monetary policy tightening in advanced economies alongside a strong US dollar has led to large capital outflows from developing nations. The World Bank expects the US Federal Reserve’s aggressive tightening to sharply slow domestic growth.

• According to the report, US consumers have enjoyed a 5% decline in brent crude oil prices between February and November 2022; however, due to the continued weakening of foreign currencies relative to the US dollar, brent crude has risen 7% in domestic currency terms, on average, in all other advanced economies.

• Global energy prices are expected to ease in 2023, with most of the new oil supply originating from US suppliers as Russia faces continued sanctions and OPEC+ remains subject to their multilateral production agreement.


• According to the Bureau of Labor Statistics, the US economy added 223,000 jobs in December while the unemployment rate declined slightly to 3.5%.

• In 2022, leisure and hospitality occupations, the most impacted by the pandemic, were added at an average of 79,000 per month, significantly lower than 2021’s average of 196,000 per month. Employment in the industry remains 5.5% below pre-pandemic levels.

• Healthcare employment increased by 55,000 in December, construction employment increased by 28,000, and social assistance added 20,000 jobs in December.

• Employment in retail, manufacturing, professional and business services, government, and transportation/ warehousing were little changed.

• Average hourly earnings for all private nonfarm payroll employees rose 0.3% month-over-month. Over the past 12 months, average hourly earnings have increased by 4.6%.


• (1) https://www.bls.gov/news.release/cpi.nr0.htm

• (2) https://www.newyorkfed.org/microeconomics/sce#/

• (3) https://www.uhaul.com/Articles/About/U-Haul-Growth-States-Of-2022-Texas-Florida-Top-ListAgain-28337/

• (4) https://www.housingwire.com/articles/2023-real-estate-investing-approach-with-caution/

• (5) https://cre.moodysanalytics.com/insights/cre-trends/from-location-to-labor-industrials-newesttrends/

• (6) https://www.nfib.com/surveys/small-business-economic-trends/

• (7) https://www.the-lmi.com/

• (8) https://www.congress.gov/117/bills/hr2617/BILLS-117hr2617enr.pdf

• (9) https://www.worldbank.org/en/publication/global-economic-prospects

• (10) https://www.bls.gov/news.release/empsit.nr0.htm

©2022 SVN International Corp. All Rights Reserved. SVN and the SVN COMMERCIAL REAL ESTATE ADVISORS logos are registered service marks of SVN International Corp. All SVN® offices are independently owned and operated. This is not a franchise offering. A franchise offering can only be made through a Franchise Disclosure Document.

View More Economic Updates:

Economic Update 01.13.23

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Economic Update 12.16.22

Economic Update 11.4.22

Economic Update 10.28.22

Economic Report 9.9.2022

Economic Report 8.26.2022

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Commercial Real Estate Economic Update 12.30.22

Featured Topics

  • Q3 GDP & Consumer Spending Revised Up

  • CRE Debt Climbs

  • Local Governments and ARPA Spending

  • Prologis 2023 Supply Chain Forecast

  • Commercial Real Estate Prices

  • Home Prices

  • Independent Landlord Rental Performance

  • Pending Home Sales

  • PCE Inflation

  • VTS Office demand

Commercial Real Estate Economic Update 11.18.22 – (Download Full PDF)



• The Bureau of Economic Analysis reported an upward revision to Real GDP in the third quarter of 2022, mainly reflecting a revised total in U.S. consumer spending. The latest estimate shows a 3.2% annualized increase in Real GDP during Q3 2022, revised up from the previous estimate of 2.9% and a reversal from the 0.6% decline seen in Q2.

• Upward revisions occurred in consumer spending, nonresidential fixed investment, and state and local government spending. These revisions were partially offset by downward revisions seen in private inventory investment and exports.

• Both real incomes and spending are on the rise to close 2022. In November, personal income increased by $80.1 billion, or 0.4% annually, while personal consumption expenditures increased by $19.8 billion, or 0.1% annually.

• The spending-driven upward revision to growth is notable, given the ongoing analysis of the Federal Reserve’s interest rate policy, its impact on investment, and the debate around the potential for a U.S. recession. Outside of housing and other rate-sensitive products, consumers have largely shaken off the Fed’s rate hikes in their spending decisions. Historically, it is atypical for an economy to enter a recession while real incomes and spending are accelerating.


• According to a recent breakdown by Trepp, outstanding Commercial Real Estate debt increased by $474.2 billion during Q3 2022 to $5.52 trillion, a 9.3% increase year-over-year

• CMBS trusts and other securitization vehicles saw the largest relative increase through Q3 2022, climbing by 15.58% or $106.1 billion to a total of $786.9 billion outstanding. Banks and thrifts, which hold the largest volume of commercial mortgage debt, saw holdings rise by 10.4% year-over-year.

• Trepp estimates that a total of $447.42 billion of commercial mortgages will come due in 2023, with the bulk of them held by banks and thrifts.

• Multifamily loans outstanding rose by $170.8 billion last quarter, also a 9.3% increase year-over-year. Notably, the GSEs Fannie Mae and Freddie Mac only accounted for $106.1 billion. According to the analysis, the remainder of loan growth results from a rise in loans held by banks, thrifts, and life insurance companies alongside an increase in securitization vehicles’ inventory


• A recent report by Brookings analyses how municipalities have budgeted the $65 billion allocated to them through the American Rescue Plan Act (ARPA) funding. The first half of the funds were allocated to states and localities in May 2021, while the second half was allocated 12 months later in May 2022.

• The total share of committed State and Local Fiscal Recovery Funds (SLFRF) reached 51% by the end of March 2022, then climbed to 61% by the end of June, roughly one month after the second batch was received.

• Large cities and consolidated counties have allotted funding quicker, having budgeted roughly 70% of their SLFRF allocations compared to just 52% for counties.

• According to a review of Treasury Department data on ARPA allocations, 43% of city and county commitments were allocated to stabilizing government operations. Roughly 15% of funds have been budgeted for public health, though this decreased from 17% of the first batch. Community aid projects have increased from 9% of budgets after the initial half was allocated to 14% through June 2022. How recovery funds are allocated helps indicate where local government priorities lie.


• Prologis recently released a list of supply chain-related predictions that it was making for 2023, particularly anticipation of slowing warehouse development despite rapid rent growth.

• Prologis expects U.S. warehouse development starts to decline by up to 60% and reach a seven-year low, projecting south of 175 million square feet of development throughout the calendar year.

• Rising interest rates alongside stubborn prices for labor and materials are likely to constrain construction, while high demand amid low vacancy rates will likely continue to produce double-digit rent growth for the Industrial sub-sector, according to the report’s forecast. Prologis estimates that even if new warehouse demand were to fall to zero, the national vacancy rate would only increase by 260 basis points, creating a floor for rents.


• Commercial real estate prices slowed in November to 4.9% year-over-year, the slowest annual pace for CRE prices in over two years, according to the latest national all-property index released by MSCI RCA. Prices fell 0.4% month-over-month.

• Industrial retains its top spot, with prices growing 14.4% year-over-year but well below the above 20% annual increases, the sector saw throughout most of this year. Industrial also charted the most significant monthly increase, climbing by 0.6%.

• The Apartment index saw the steepest fall on a monthly basis, dropping -1.1% month over month but rising 7.4% year-over-year. It was the first month that apartment price growth dipped below a double-digit rate since early 2021.

• The Retail index rose 7.1% year-over-year but just 0.1% month-over-month. The spread between the Retail and Apartment Indexes was at its narrowest since 2014.

• Office prices climbed 5.1% year-over-year through November, slowing from the 12.7% rate seen at the start of 2022. The CBD Office index rose 1.8% year-over-year, while Suburban Office rose 5.9%

• Price growth in Gateway markets recorded its slowest growth since 2010, climbing just 0.7 year-over-year. Further, the Gateway index has posted five consecutive monthly declines. Non-major markets rose 6.6% annually but declined 0.2% month-over-month.


• Home prices saw their fourth monthly decline through October 2022, according to the latest update to the S&P CoreLogic Case-Shiller U.S. National Home Price Index. Home prices rose 7.3% year-to-date and 9.24% year-over-year.

• Miami (+21%), Tampa (+20.5%), and Charlotte (+15%) reported the highest year-over-year increases within the 20 cities tracked by the index. San Francisco performed the weakest (+0.6%), followed by Seattle (+4.5%).

• The report analysts note that despite significant regional differences, all 20 cities tracked in the index reflect the trend of short-term decline and medium-term deceleration. Analysts note that mortgage financing will continue to face headwinds as the Federal Reserve moves interest rates higher, which may continue to weaken price growth.


• The on-time collection rate for independently operated residential properties fell by 156 bps between November and December, falling to 81.2%, according to the latest Independent Landlord Rental Performance Report by Chandan Economics. December’s full payment rate is expected to land at 90.7% by month’s end.

• Units located in the Sun Belt have maintained higher on-time payment rates than units located elsewhere for the second consecutive month. December’s on-time payment rate stands at 81.7% in Sun Belt units and 80.9% in non-Sun Belt units.

• 2–4-unit rental properties and SFRs held the highest on-time payment rates of all sub-property types in December, both coming in at 82.3%.


• Pending home sales dropped to their lowest level since April 2020 and their second-lowest level on record during November, according to the National Association of Realtors.

• Contract signings dropped by 4% to an index reading of 73.9, the lowest reading outside of the pandemic dating back to 2001. The decline exceeded most industry estimates.

• According to the University of Michigan’s Consumer Sentiment Index, U.S. consumers are the most pessimistic about homebuying conditions that they have been since the early 1980s.

• While Fed tightening continues to make credit more expensive for potential home-buyers, mortgage rates have actually declined in recent weeks. NAR Chief Economist Lawrence Yun anticipates that the modest rate decline should lead to moderate increases in homebuying activity


• The PCE Price Index increased by 0.1% in November, a drop from the 0.4% increase in October and the slowest rise in price since July, according to the latest numbers from the Bureau of Economic Analysis. Prices are up 5.5% year-over-year

• Core PCE prices, which exclude the cost of food and energy and are the Fed’s preferred inflation gauge when considering monetary policy decisions, increased by 0.2% in November, below the 0.3% rise seen in October. Core prices also saw their slowest increase since July.

• Food prices rose 0.3% in the month, while energy prices dropped by 1.5%.


• The latest numbers from VTS’ Office Demand Index (VODI) showed an 8.3% increase in new demand for office space during October, the second consecutive month where office demand has increased, fully offsetting August’s declines.

• Much of October’s activity reflects seasonal patterns and comes amid increased economic uncertainty surrounding rising capital costs and the potential for a U.S. recession.

• The VODI remains 14.8% below its October 2021 level as the office sector converges towards a new post-pandemic normal.

• VTS finds that over the past year, new office space demand has strongly correlated with metro-area job postings, with the most notable increase in October seen in Washington D.C. while the most significant decrease tracked was in Seattle.


• (1) https://www.bea.gov/data/gdp/gross-domestic-product

• (2)https://www.trepp.com/trepptalk/commercial-mortgage-universe-grows-multifamily-universe-tops-2-trillion?utm_campaign=trepploan&utm_mediu

• (3) https://www.brookings.edu/blog/the-avenue/2022/12/16/local-governments-ramped-up-american-rescue-plan-commitments-and-expenditures-in-2022/

• (4) https://www.prologis.com/news-research/global-insights/seven-supply-chain-predictions-2023

• (5) https://www.msci.com/our-solutions/real-assets/real-capital-analytics

• (6) https://www.spglobal.com/spdji/en/documents/indexnews/

• (7) https://www.chandan.com/independent-landlord-rental-performance-report

• (8) https://www.nar.realtor/research-and-statistics/housing-statistics/pending-home-sales

• (9) https://www.bea.gov/data/personal-consumption-expenditures-price-index#:~:text=A%20

• (10) https://www.vts.com/

©2022 SVN International Corp. All Rights Reserved. SVN and the SVN COMMERCIAL REAL ESTATE ADVISORS logos are registered service marks of SVN International Corp. All SVN® offices are independently owned and operated. This is not a franchise offering. A franchise offering can only be made through a Franchise Disclosure Document.

View More Economic Updates:

Economic Update 12.30.22

Economic Update 12.16.22

Economic Update 11.4.22

Economic Update 10.28.22

Economic Report 9.9.2022

Economic Report 8.26.2022

Economic Report 5.13.2022

Economic Report 3.18.2022

Economic Report 2.25.2022

Commercial Real Estate Economic Update 12.16.22

Featured Topics

  • FOMC Interest Rate Decision

  • CPI Inflation

  • Renter vs. Homeowner Inflation

  • Fannie and Freddie Unlikely To Meet Allocations

  • NAIOP Industrial Space Demand Forecast

  • The Short and Long-Run Effects of Remote Work

  • Jobs Report

  • Consumer Sentiment

  • Summary of Economic Projections

  • Brick-and-Mortar Retail Outlook

Commercial Real Estate Economic Update 12.16.22 – (Download Full PDF)



• On December 14th, the Federal Reserve’s policy-setting committee raised their target Federal Funds Rate (FFR) range by 50 basis points to 4.25%-4.50%, slowing their speed of rate increases after four consecutive 75 basis point hikes — an apparent response to evidence of slowing inflation

• In their statement accompanying the FOMC meeting, members remained hawkish in their commitment to slowing the economy’s price pressures, largely refraining from any shift in tone compared to their last meeting, despite a deceleration in rate increases. Officials expect to continue increasing rates well into next year.

• Benchmark interest rates now sit at their highest level since 2007, with officials, on average, projecting a 5.1% terminal rate — the rate at which the committee stops increases — according to the FOMC’s latest dot plot.


• The Consumer Price Index (CPI) rose 7.1% year-over-year and just 0.1% month-over-month, according to the latest numbers from the Bureau of Labor Statistics — below most industry estimates. The annual inflation rate has now fallen for five consecutive months.

• Core CPI, which removes food and energy prices from the calculation and is more closely tied to monetary policy decisions, rose 6.0% over the past 12 months and 0.2% between October and November

• Energy costs rose 13.1% year-over-year through November but contracted by -1.6% month-over-month. Food costs increased by 10.6% year-over-year and 0.5% month-over-month, the slowest monthly increase since December 2021.


• According to Chandan Economics’ recalibrations of CPI data, the adjusted inflation rate for renters was 7.1% year-over-year in November, squarely in line with the increase in headline inflation while falling -0.7% from one month earlier

• Meanwhile, fixed-rate mortgage homeowners experienced a 4.8% year-over-year inflation rate through November and falling -0.8% month-over-month.

• The spread between renter and homeowner personal inflation rates reached 2.3% in November, a new record according to Chandan Economics’ calculations. In the six years between 2014 and 2020, the rate of renter inflation averaged 1.1 percentage points higher than homeowner inflation. Notably, the spread remained consistent over this period — never departing more than ten basis points from the 1.1 percentage point average.


• Fannie Mae and Freddie Mac are on a trajectory to undershoot the $78 billion in Multifamily allocations granted to them by the FHFA, a potential first for the Government Sponsored Enterprises (GSEs).

• As explained by Yardi Matrix Research Director Paul Fiorilla, strong residential demand in recent years has meant high GSE lending capacity. Still, US inflation necessitated a rapid rise in interest rates, reducing some of this demand. Fiorilla forecasts a resulting $8 billion agency lending shortfall.

• Reflecting a fall in mortgage demand, FHFA recently cut the GSEs’ 2023 allocations to $75 billion, $3 billion below the 2022 level.

• Given the Agencies, and by extension, HUD’s role as a sort of lender of last resort, Fannie and Freddie’s lending capacity should remain solidly adequate to support the market’s credit needs. Further, half of all agency loans must be backed by properties that contain an affordable housing component, efforts which are likely to intensify as policymakers attempt to address a nationwide shortage of affordable housing.


• According to NAIOP’s latest forecast, industrial space acquisition volume fell during the third quarter of 2022 as retailers and logistics firms reduced purchases amid easing supply chain issues, increased carrying costs, and slowing growth in the e-commerce sector.

• Amazon made headlines in the sector this year after nixing previously planned Industrial space expansions. At the same time, smaller e-commerce firms continued to lease new additional distribution spaces throughout the year, although at a lesser rate than in 2021.

• Net absorption in the sector nearly doubled in 2021 compared to the year before, registering 432.5 million square feet of absorption, beating NAIOP forecasts. The group forecasts that 326.3 million square feet will be absorbed by year-end 2022, amounting to a 24.5% decline from 2021 but 31.4% above 2020’s total.

• NAIOP notes that this year’s decline in acquisitions ran concurrently with decreases in the New York Fed’s Global Supply Chain Pressure Index, which has improved significantly from unprecedented highs.



• A recent paper sponsored by the Economic Innovation Group (EIG) studied the impact of remote work on long-term housing affordability. The report found that much of the new demand driven by remote work is shifting into markets where supply can respond to changes in demand more quickly, resulting in a longer-run decrease in housing costs for renters.

• The paper relies on research that has widely reported work-from-home’s dramatic impact on housing markets from 2020 to 2022, including increased overall demand, flattened “intra-city house price gradients,” and reallocated shares of demand among US cities. According to the report’s calculations, inflation-adjusted rents climbed by 8% while real house prices rose by over 20%.

• The report considers two main ways remote work impacts long-term demand trends. First, by marginally shifting away housing demand from the central business districts of large cities, which tend to experience less housing supply elasticity (tepid reactions to changes in demand). Secondly, through an overall increase in space demand as workers use home offices and increase their overall time spent at home, therefore increasing the demand for amenities.


• The US economy added 263,000 jobs in November while the unemployment rate remained at 3.7%, according to the latest jobs report from the Bureau of Labor Statistics.

• What has developed into a pattern in recent months, payroll gains blew past most market expectations, climbing above the consensus estimate of 200,000.

• Notable gains were made in leisure and hospitality, health care, and government, with declines in retail trade and transportation/warehousing jobs. The trend is curious, given the winter month’s typical reduction in leisure demand alongside usual increases in retail store demand around the holidays.

• Average hourly earnings rose by 0.6% for the month and 5.1% year-over-year.

• Stocks fell following the news in anticipation of the Fed continuing its aggressive pace of rate hikes to slow consumption and, therefore, inflation. While the Fed ultimately slowed its rate hikes slightly to an increase of 50 basis points in December, officials remain committed to increases well into 2023 to calm price pressures.


• Consumer sentiment rose by 4% above November’s estimate in December, according to the latest numbers reported by the University of Michigan.• The agency will also require that 50% of the lending be mission-driven affordable housing, in line with last year’s levels. However, it has added a new workforce housing category that it hopes will incentivize conventional borrowers to maintain rents at affordable levels for “extended periods of time.”

• Each of the sentiment index’s components rose in December, with one-year business conditions expectations booming by 14% and views of long-term business conditions improving by 6%.

• The increase in sentiment was evident across several demographic groups, with a higher increase observed for high-income households and those with more significant stock holdings.

• Concerns over high prices slightly declined in the month’s survey. Year-end inflation expectations improved but remained elevated compared to historical standards, falling from 4.9% to 4.6%, a 15-month low.


• The Fed’s latest summary of economic projections, released alongside the December policy meetings, shows a higher forecast for 2022 year-end GDP growth compared to the September projection, but a much lower forecast for 2023. Members see growth slowing to 0.5% annually in 2023 compared to the September forecast of 1.2%. Longer-run growth forecasts were little changed.

• The average forecast for the unemployment rate was revised downward for year-end 2022, from 3.8% in September to 3.7% in December. Their 2023 forecast moved the projected unemployment rate slightly higher, from a forecast of 4.4% in September to 4.6%.

• Both headline and core inflation saw increases in their updated 2022 and 2023 forecasts despite a recent decline in consumer prices. Members expect a core-PCE inflation rate (the Fed’s preferred measure for monetary policy decisions) of 4.8% in 2022 and 3.5% in 2023.


• A recent Moodys report on Brick-and-Mortar Retail details its evolution in recent years as e-commerce becomes an increasingly dominant force in retail development. The analysis finds that developers are employing a new mix of property types, including housing, office, and both experiential and goods retail, that optimizes foot traffic and consistency

• While the report acknowledges that recent rent and vacancy trends show weakness, they also point to a degree of steadiness experienced by in-person retail in the face of pandemic-era stress. Retail vacancy has largely continued its post-GFC downward trend and has experienced little additional reduction from the COVID-19 pandemic.

• Further, e-commerce’s share of retail sales peaked in 2022 at 16.4% before normalizing as in-person activity rebounded in 2021 and 2022, falling to 14.5%.



©2022 SVN International Corp. All Rights Reserved. SVN and the SVN COMMERCIAL REAL ESTATE ADVISORS logos are registered service marks of SVN International Corp. All SVN® offices are independently owned and operated. This is not a franchise offering. A franchise offering can only be made through a Franchise Disclosure Document.

View More Economic Updates:

Economic Update 12.16.22

Economic Update 11.4.22

Economic Update 10.28.22

Economic Report 9.9.2022

Economic Report 8.26.2022

Economic Report 5.13.2022

Economic Report 3.18.2022

Economic Report 2.25.2022

Commercial Real Estate Economic Update 11.18.22

Featured Topics

  • Thanksgiving Inflation

  • Inflation

  • ULI-PwC Emerging Trends In Real Estate

  • Retail Sales

  • Retail Inventories Excluding Autos

  • Grocery’s Ongoing Resilience

  • MSCI RCA Property Price Index

  • FHFA Multifamily Loan Purchase Caps

  • NAHB/Wells Fargo Housing Market Index (HMI)

  • Manufacturing Production

Commercial Real Estate Economic Update 11.18.22 – (Download Full PDF)



• As Americans sit down for this year’s Thanksgiving, it’s more than just after-dinner-waistlines experiencing uncomfortable inflation levels. According to a recent Chandan Economics analysis, the average price of turkey has increased a whopping 16.9% in the past year, more than doubling the current CPI rate of inflation (7.7%).

• Turkeys aren’t the only ones flying high this year. Compared to one year ago, potato prices are up an average of 15.2%. The other fresh vegetables at the table also see significant price pressures, albeit at a slightly more palatable 8.3%. Meanwhile, ham, another popular protein item, is up by 9.1% year-over-year.

• Other items noted in the report, such as flour and butter, are up this year by 24.6% and 26.7%, respectively. Meanwhile, egg prices are up by an odious 43.0%.

• If the above was sobering, a helpful caveat might be that this year, wine, beer, and spirits have all seen lower-than-average pricing pressures.


• According to the Bureau of Labor Statistics, the Consumer Price Index (CPI) rose 7.7% year-over-year through October and 0.4% month-over-month. Notably, between February 2021 and June 2022, monthly prices grew by at least 0.5% in 17 of the 21 months. Monthly inflation has been below 0.5% now for four consecutive months.

• Energy costs bounced back in October to become the largest major contributor to price pressures again, climbing 1.8% month-over-month following three consecutive declines.

• Food costs, while continuing to rise, decelerated to their most tepid increase since December 2021, rising just 0.6%. On the other hand, Shelter costs continued to accelerate in October, rising by 0.8%. Food and Shelter costs have risen by 10.9% and 6.9% over the past 12 months, respectively.

• Core CPI, which removes food and energy prices from the calculation, is up 6.3% over the last 12 months and 0.3% month-over-month. Core prices have decelerated slightly from summer levels but remain significantly above the Federal Reserve’s 2% target.


• Respondents in this year’s Emerging Trends in Real Estate by ULI-PwC appeared to agree that despite several uncertainties facing Commercial Real Estate in the year ahead, most remain optimistic about the industry’s long-term outlook.

• Among the key themes covered in the 2023 report was the workforce transformation enabled by remote work. By some estimates, in several major markets, less than half of all workers who have access to an office attend one on any given day. The report’s analysis estimates that 10-20% of Office stock may need to be repurposed as a consequence.

• Discussions about liquidity and capital markets were also a key theme in this year’s report, as sentiment has shifted from an “everyone wants in” headline to a more cautious and selective approach to capital deployment. Higher interest rates are not expected to trigger a sell-off in real estate assets, but investors are placing more weight on long-term fundamentals as capital availability shrinks.

• Infrastructure spending, which has been of focus in previous years’ reports, shifted from a relatively negative outlook to a positive one following Washington’s achievement of new legislation this year. An estimated $600 billion in new transportation funding and another $65 billion for broadband expansion, among other provisions, is seen as a critical investment, especially as several US metros experience generational growth.

• Housing affordability also remained on top of investors’ minds, as high financing costs and supply chain issues strain construction in a housing market already in short supply. While this may mean pain for many consumers in the short term, residential real estate investors are poised to benefit from demand trends that necessitate more capital in the space.


• In October, US retail and food services sales saw their most significant single-month increase since February, climbing by 1.3% month over month to $694.5 billion following a flat performance in September.

• Motor vehicle dealer sales also rose 1.3% month-over-month through October, assisted by the easing of some supply chain issues. Sales at gas stations increased by 4.1%, primarily due to rising gasoline prices. Gas station sales are up 17.8% year-over-year.

• Excluding gasoline and autos, retail sales climbed a more modest 0.9% month-over-month but still outpaced recent monthly performance.

• Sales at food services and drinking places climbed by 1.6% month-over-month while volume at food and beverage storefronts rose by 1.4%. Non-store retailers rose 1.2%, furniture stores 1.1%, and building materials 1.1%.


• US retail trade inventories, excluding autos and parts, dropped 0.1% month-over-month in October, the first negative reading for inventories since the middle of 2020.

• The news rings positive for retailers, many of who have cited excess merchandise as weighing down on profits in recent months. As the holiday shopping season approaches, many in the sector have begun sales campaigns earlier to both reduce inventories and adjust to post-pandemic spending patterns.

• On the other hand, high inventories have helped boom demand for Industrial space, which could see some softening activity as retail inventories decline. Nonetheless, the pandemic shift in online shopping and the overall resiliency of consumer spending should help reduce the exposure of Industrial assets to sudden changes in inventory.


• Despite falling activity compared to 2021, grocery stores have maintained most of their increased foot traffic relative to pre-pandemic levels, according to a recent analysis by Placer AI.

• Since June, year-over-year grocery store visits have been negative. Still, much of this is influenced by the elevated activity levels we saw in 2021 and the subsequent normalization of said activity. Grocery store visits have held above their pre-pandemic benchmark in three out of four months over the same period, signaling that the sector is maintaining its pandemic-era growth.

• The analysis notes that while overall visits have declined in recent months, visit duration has increased. The increase in duration also began in June, in line with when visits began dropping, suggesting that inflation pressures incentivize people to shop less, but purchase more in bulk.


• Commercial real estate prices rose 7.3% year-over-year through October, according to the latest national all-property index released by MSCI Real Capital Analytics (RCA). Prices declined 0.4% on a monthly basis.

• Price growth has eased in the face of rising financing costs and lower transaction activity. Transaction volume fell 21% year-over-year in the third quarter and saw another double-digit decline in October.

• Industrial retains its top spot, particularly standing out with a 0.7% month-over-month gain in prices, while annual growth hit 16.9%. Still, October was the seventh consecutive monthly deceleration for Industrial prices.

• Apartment prices fell 0.6% from September as slowing rent growth appears to have trickled into valuations. Apartment assets are still up 11.3% year-over-year, trailing only Industrial properties.

• Retail prices fell by 0.3% in October after being flat for two consecutive months but climbed 18.2% year over year.

• Office prices fell 0.1% month-over-month from September, but are up 5.2% year-over-year.

• Price growth in the six major gateway markets tracked by MSCI RCA continued to slow in October, falling by 0.8% month-over-month and climbing by just 0.8% year-over-year. Meanwhile, non-major metros were fl at from September to October but are up 9.9% year-over-year.


• The FHFA recently announced its 2023 multifamily loan purchase caps for Fannie and Freddie, which will total $75 billion each, down from $78 billion each in 2022. According to an agency statement, after the caps were announced, they reflect an “anticipated contraction of the multifamily originations market” in 2023.

• The agency will also require that 50% of the lending be mission-driven affordable housing, in line with last year’s levels. However, it has added a new workforce housing category that it hopes will incentivize conventional borrowers to maintain rents at affordable levels for “extended periods of time.”

• The FHFA also plans to allow loans to “finance energy or water efficiency improvements” for units affordable at or below 80% of area median income (AMI) classified as mission-driven. This level was 60% of AMI in 2022.


• According to this month’s preliminary estimate, the NAHB/Wells Fargo Housing Market Index (HMI) fell from 38 to 33 in November. All subcomponents of the index — current single-family home sales, projections of single-family home sales over the next six months, and current traffic of prospective buyers — posted month-over-month declines.

• Regionally, the West was the only of the four major regions to post an increase from October to November, rising from 25 to 28. The Midwest saw a modest decrease over the month by one index point, while the Northeast and South fell by 17 and 7, respectively.

• The HMI measures builder confidence on a scale of 0 to 100, calculated based on respondents rating their sentiment from “poor” to “good” and “low” to “very Low”. Confidence has now fallen for 11 consecutive months, returning to levels not seen since the early days of the COVID-19 pandemic.


• US manufacturing production rose by 2.4% year-over-year through October 2022, a decline from September following consecutive months of acceleration in August and September.

• The direction of production levels over the past couple of months provided hope that activity had bottomed out in July, but October was the smallest relative increase in production levels since January.

• The Federal Reserve tracks manufacturing production, considered to account for 78% of total economic production in the US, including major segments such as Chemicals (12%); food, drink, and tobacco (11%); machinery (6%); fabricated metal products (6%); computer and electronics (6%) and motor vehicles and parts (6%).


• (1) https://www.linkedin.com/posts/chandan-economics_chandan-economics-thanksgiving-inflation-activity-6999099751799353344-jQMA?utm_source=share&utm_medium=member_desktop

• (2)https://www.bls.gov/cpi/

• (3) https://www.pwc.com/

• (4) https://www.census.gov/retail/marts/www/marts_current.pdf

• (5) https://tradingeconomics.com/united-states/retail-inventories-ex-autos

• (6) https://go.placer.ai/library/brick-and-mortar-grocerys-ongoing-resilience?submissionGuid=34

• (7) https://www.msci.com/research-and-insights/market-insights

• (8) https://www.fhfa.gov/Media/PublicAffairs/Pages/FHFA-Announces-2023-Multifamily-LoanPurchase-Caps-for-Fannie-Mae-and-Freddie-Mac.aspx

• (9) https://www.nahb.org/news-and-economics/housing-economics/indices/housing-market-index

• (10)https://www.federalreserve.gov/releases/g17/current/default.htm

©2022 SVN International Corp. All Rights Reserved. SVN and the SVN COMMERCIAL REAL ESTATE ADVISORS logos are registered service marks of SVN International Corp. All SVN® offices are independently owned and operated. This is not a franchise offering. A franchise offering can only be made through a Franchise Disclosure Document.

View More Economic Updates:

Economic Update 11.4.22

Economic Update 10.28.22

Economic Report 9.9.2022

Economic Report 8.26.2022

Economic Report 5.13.2022

Economic Report 3.18.2022

Economic Report 2.25.2022

Commercial Real Estate Economic Update 11.4.22

Featured Topics

  • Interest Rate Hike

  • Jobs Report

  • Multifamily Cap Rates

  • Malls In Recovery

  • Falling Rent Expectations

  • Fannie Mae Housing Forecast

  • Consumer Sentiment

  • Personal Income and PCE Inflation

  • New Construction


Commercial Real Estate Economic Update 11.4.22 – (Download Full PDF)


• On November 2nd, the FOMC voted to increase the Federal Funds Rate by 75 bps for the fourth consecutive time, taking the benchmark interest rate to its highest since early 2008. The current Federal Funds Target Rate sits at 3.75%-4.00.

• In the accompanying statement following the meeting, the Fed shifted its tone slightly, indicating that it intends to “take into account the cumulative tightening of monetary policy” and “lags with which monetary policy affects economic activity and inflation.” The statement signals that while the committee remains committed to raising rates to rein in inflation, they are beginning to look for signs that may justify a pivot.

• Stocks initially rose on the news of the rate hike but began to fall during Jerome Powell’s news conference in reaction to the marginally more dovish statement on the future path of monetary policy.

• While a new summary of economic projections did not accompany this month’s meeting, Chair Powell stated in his press conference that he now expects the “terminal” rate — the level at which the Fed stops further rate increases — to be higher than what it was thought to be a few months ago. The higher rates need to be to tame inflation, the harder it will be for the central bank to achieve a monetary “soft landing.”


• The US economy added 261,000 jobs in October while the unemployment rate rose slightly to 3.7%, according to the Bureau of Labor Statistics.

• This month’s jobs report performed stronger than most expectations and signaled a resilient labor market amid a tightening financial landscape. Notable gains were made in health care, professional and technical services, and manufacturing.

• Stock futures reacted positively to the report initially; however, the continued strength of job growth could force the Fed to continue the pace and degree of its monetary tightening campaign for longer.

• Healthcare employment climbed the most during the month (+55,000), followed by professional and technical services (+43,000), and manufacturing (+22,000). Employment in social assistance services, wholesale trade, and leisure and hospitality all saw notable growth in October.

• The average hourly earnings for all private employees rose by 0.4%, or 12 cents to $32.58.


• According to a recent analysis by Trepp, despite facing rising Treasury yields, multifamily cap rates are holding below 4%.

• The analysis uses an implied cap rate methodology, which examined the net operating incomes of transacted multifamily properties backed by a GSE-sponsored mortgage. While the report’s findings indicate that there has been some upward movement in cap rates between July and September, the increase has been a fraction of the observed rise in Treasury yields.

• Cap rates holding at their low levels while the 10-year Treasury yield has risen means that investors are receiving less risk compensation than they have at any point post-Financial Crisis.


• David Simon, CEO of Simon Property Group, spoke to investors in his company’s third-quarter earnings call and talked about the improving conditions for their portfolio and the Mall sub-sector as a whole.

• For the country’s largest Mall REIT, occupancy rates were up 1.7 percentage points from a year ago, reaching just shy of 95%. Further, base minimum rent per square foot is also on the rise, gaining $0.89 in the past year to $54.80.

• According to daily pricing data from FTSE Nareit, no subsector in commercial real estate has enjoyed a more robust fourth quarter so far than Regional Malls. From the start of the quarter, Regional Mall REIT prices are up an average of 25.1%. The next best performing sub-sector was Lodging/Resorts at a distant 13.3%.


• A new report by Yardi Matrix is warning that rent growth will likely slow significantly in 2022 and 2023.

• “Almost all of the expected rent growth for 2022 has happened,” the firm posits, and forecasts that rent growth may become “anemic.” While some of this is due to seasonality, as transaction activity and therefore rent growth naturally falls when the weather gets colder, Yardi’s revision also reflects an uncertain economic outlook in the medium term.

• Not all the analysis was negative, however. The firm notes that a mix of high inflation (including wages) and continued employment gains could result in a “higher-than-average jump out of the gate” in the spring when seasonality typically swings in the other direction.


• Fannie Mae’s October 2022 housing forecast shows a slight contraction in home prices for 2023. The 1.5% decrease in home prices forecasted for 2023 would follow significant increases of 18.9% and 9.0% in 2021 and 2022 (forecasted), respectively.

• Fannie Mae’s forecasts expect elevated mortgage rates through the end of next year. The company is forecasting the 30-year fixed mortgage rate to average 6.7% in the fourth quarter of 2022 and a gradual decline from 6.6% to 6.2% between the first and fourth quarters of 2023. The 30-year mortgage averaged 3.0% in 2021.

• New multifamily construction is expected to stay strong through the end of 2022, averaging over 500 thousand units per quarter. It would be the second year of solid growth after starts increased by 21.8% in 2021. However, the forecasts call for starts to fall to an average of 390 thousand units per quarter. The drop would put multifamily housing starts back in line with benchmarks last seen in the years leading up to the pandemic.


• The University of Michigan Consumer Sentiment Index rose by 1.3 points in October from September, diverging from the Conference Board’s confidence index, which had shown a decline in October following increases in August and September.

• While recession concerns remain high, the Michigan index has risen in each month since hitting an all-time low in June. According to the report’s analysis, buying conditions for durables rose by 23% on the basis of easing prices and fewer supply chain issues. Still, future expectations for business conditions fell by 19%.

• The worsening of future consumer expectations alongside steady improvements in current sentiment is noteworthy — as one would typically expect current conditions to reflect consumers’ dim outlook gradually. This divergence reflects the uncertainty created by today’s dual inflationary and recessionary environment and the trouble that both businesses and consumers have forecasting ahead.


• Both personal income and disposable personal income rose by 0.4% in September, while consumption increased by 0.6%, according to the latest figures by the Bureau of Economic Analysis (BEA).

• Recent increases in personal income have helped wages buck some of the impact of inflation in recent months, albeit modestly. Real personal disposable income has remained positive since June, when inflation last outpaced income gains.

• PCE Price Index increased by 0.3% month-over-month in September and 6.2% year-over-year. The PCE price index has relatively consistently underpaced the more widely cited Consumer Price Index, but both have moved in the same general direction.

• Core PCE prices, which exclude the cost of food and energy and are the Fed’s preferred inflation gauge when considering monetary policy decisions, increased by 0.5% in September and 5.1% year-over-year. Roughly over the past 3-4 months, core inflation has seen more upward pressure than headline prices, which could be a modest hand to households preparing for the winter months, some of who may need to prioritize food and energy spending over more discretionary items. Still, base effects from last year are partially responsible for decelerating headline prices, as food and energy prices started to outpace core more significantly beginning in the summer of 2021.


• New construction continues to be delivered at a healthy pace through September 2022. The value of new construction put in place in September totaled $1.8 trillion at an annualized rate. The current speed is 0.2% higher than the previous month and 10.9% higher than in September 2021.

• Residential construction accounted for 51% of deliveries by total value, coming at $918 billion. Measured from one year ago, the annualized pace of single-family home deliveries is down by 2.7%, while the rate from multifamily is up by 1.9%.

• The annualized value of new office properties in place totaled $86 billion in September 2022, just 0.7% higher than last year. Meanwhile, commercial/retail properties, which saw their pace climb to $115 billion, were up by 22.4% from last year.


• Job openings remained strong through September 2022, signaling that the U.S. labor market exited third-quarter 2022 with momentum and resilience. Data from the Bureau of Labor Statistics Job Openings and Labor Turnover Survey show the number of job openings rose to 10.7 million in September — an increase from the 10.3 million in August. Though 10.7 million is down from the 11.9 million peak in March 2022, it remains well above the pre-pandemic peak of 7.6 million in November 2018.

• Accommodation and food services led the push in openings, which gained over 200 thousand openings between August and September 2022. Losses in the wholesale trade and finance and insurance sector tempered gains.

• September’s ratio of job openings to unemployed persons (1.9) underscores the nation’s tight labor market. The quits rate — the number of quits as a percent of total employment — stayed steady at 2.7% for the third consecutive month. The layoffs and discharges rates were little changed, showing employers were hanging on to talent through the end of the third quarter of 2022.



• (2) https://www.bls.gov/news.release/empsit.nr0.htm

• (3) https://www.trepp.com/trepptalk/cap-rates-on-recent-sales-continue-to-hover-around-4-of-2021- noi

• (4) https://therealdeal.com/2022/11/01/simon-malls-dont-suck-in-fact-theyre-doing-well/

• (5) https://www.globest.com/2022/11/03/yardi-matrix-broadly-revises-multifamily-forecasts-down-for2022-and-2023/

• (7) http://www.sca.isr.umich.edu/

• (8) https://www.bea.gov/data/personal-consumption-expenditures-price-index#:~:text=A%20 measure%20of%20the%20prices,refl ecting%20changes%20in%20consumer%20behavior

• (9) https://www.census.gov/construction/c30/c30index.html

• (10) https://www.bls.gov/jlt/

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View More Economic Updates:

Economic Update 10.28.22

Economic Report 9.9.2022

Economic Report 8.26.2022

Economic Report 5.13.2022

Economic Report 3.18.2022

Economic Report 2.25.2022

Commercial Real Estate Economic Update 10.28.22

Featured topics:

  1. GDP

  2. Beige Book Analysis

  3. MSCI RCA Commercial Property Prices

  4. Independent Landlord Rental Performance

  5. Industrial Sector Woes

  6. Student Housing

  7. Office Demand

  8. Existing Home Sales

  9. Subleasing Activity

  10. Consumer Confidence

1. GDP

• Real GDP increased by an annual rate of 2.6%% in Q3 2022, according to the advanced estimate released by the Bureau of Economic Analysis (BEA). The increase follows two consecutive quarterly declines in Q1 and Q2, moderating some concerns that the US economy is already in recession.

• Increases in exports, consumer spending, government spending, and nonresidential fixed investment drove the climb in economic output. Meanwhile, private inventory investment and residential fixed investment declined during the quarter.

• Notably, the only GDP components that changed directionality from last quarter were nonresidential fixed investment and government spending. Both went from a drag on GDP in Q2 to a driver of GDP in Q3.

• The leading driver of increased exports was industrial supplies and materials, including petroleum and other non-durables. Services also increased, mainly travel and financial services. Within consumer spending, an increase in healthcare expenditures was partially offset by a decline in motor vehicle and
food and beverage spending.

• Nonresidential fixed investment, which went from negative to positive quarter-over-quarter, was driven by equipment spending and intellectual property products while partially offset by a decrease in structures.


• The mid-October release of the Federal Reserve’s Beige Book shows that economic activity expanded modestly across the nation compared to recent weeks. However, conditions varied greatly between industries and districts.

• Four of the twelve federal reserve districts reported flat activity while two noted declines—with the latter citing slowing or weak demand in the face of higher interest rates, inflation, and supply issues.

• Of the six that reported increased activity, travel and tourism rose sharply, while manufacturing activity held steady or expanded.

• Retail spending was reportedly flat across most districts as discretionary spending slowed while demand for services, specifi ally nonfinancial services, rose.
• Rising mortgage rates and elevated house prices continued to weaken single-family starts and sales but helped push up apartment leasing and rents.
• Commercial real estate experienced softening in both construction activity and sales as supply and labor shortages continue to slow activity, which higher borrowing costs have only exacerbated.


• Commercial real estate prices climbed by 11.1% year-over-year through September, according to the latest national all-property index released by MSCI RCA. This month’s increase was the weakest annual pace since early 2021.

• Price growth has eased in the face of rising financing costs and lower transaction activity. Transaction volume fell 21% year-over-year in the third quarter.

• Industrial retains its top spot, with prices growing 18.1% year-over-year, but saw growth dip below 20% for the first time in over a year.
• Apartments prices climbed 0.2% from August and registered a 15.9% increase year-over-year.

• Retail prices remained flat month-over-month but climbed 11.8% year-over-year through September from one year ago; still—annual growth in Retail has slowed for seven consecutive months.

• Office rates climbed 0.3% month-over-month from August and 6.8% year-over-year.

• Price growth in the six major gateway markets tracked by MSCI-RCA fell by 0.5% month-over-month and 3.7% year-over-year. Meanwhile, non-major metros climbed by 0.3% from August to September and 13.7% year-over-year.


• On-time collection rates for independently operated residential properties improved by 159 bps between September and October, rising to 81.9%, reaching a 2022 high. According to Chandan Economics’ Independent Landlord Rental Performance Report.

• October’s full payment rate is forecast to land at 92.5% by month’s end, representing a year-over-year improvement of 171 bps.

• Observing the state of Florida following the impact of Hurricane Ian, the report shows that of the preliminary estimate, 82.2% of independently operated apartments in Florida have successfully paid their October 2022 rents on time. Notably, the on-time payment rate in Florida remains above the national
average by 24 bps, despite the storm’s impact.

• Gateway markets maintained higher on-time payment rates than units located elsewhere for the tenth consecutive month. October’s on-time payment rate stands at 82.0% in Gateway units and 81.9% in nonGateway units.

• Small Multifamily rental properties (5-49 units) held the highest on-time payment rate of all sub-property types in October, coming in at 83.2%.

• Mid-priced rentals ($2,000-$2,499) continue to outperform all other price points, recording an on-time payment rate of 85.8% through October 15th— the highest mark for these (or any) rentals in 2022 to date.


• Below-expectation earnings from Prologis for the third quarter rattled its share price this week and joined some other signals of relative concern in the Industrial market.

• Several indicators, including a decline in the Philadelphia Fed’s Capital Expenditures Index and transaction data from MSCI Real Capital Analytics, indicate a decrease in buying activity within the sector, and Prologis
acknowledges that some of their customers have publicly indicated their plans to pause Capex spending.

• However, Prologis CFO Tim Arndt states several customers have indicated “an overarching need to increase space as supply chain resiliency remains a top concern.”

• Vacancy rates remain at or near all-time lows in much of the country, sitting at just 1.7% in US coastal markets. As a result, space for new facilities has become increasingly scarce.

• According to statements by the company, although large customers like Amazon have slowed their buying pace, potentially due to overbuying in previous quarters, they have not given up on previously acquired space.


• Occupancy in Student Housing stands at 96.6%, with assets seeing 4.1% year-over-year rent growth, according to the Fall 2022 Report Card by Yardi Matrix.
• The report card tracks housing units across 200 universities and found that preleasing had accelerated faster at schools with higher levels of selectivity and enrollment. Still, schools across the board saw an improvement in occupancy and incomes.

• 12 of 200 universities experienced double-digit growth in preleasing through September 2022 compared to one year before. Washington State University and the University of Houston topped the list, climbing by 18.9% and 16.4%, respectively.

• While enrollment nationwide remains below peak, the number of universities returning to full capacity climbed dramatically in the past year.


• VTS’ latest office demand index (VODI) increased in September, joining several other metrics signaling an uptick in office activity following the Labor Day holiday.

• The VODI ticked up from an index reading of 46 to 48 in September. The index level indicates the percentage of office demand relative to a pre-pandemic benchmark.

• Similarly, weekly data by Kastle Data systems shows that most office tenants have returned to the office at least part-time. However, overall daily activity remains down by half of 2019 levels.

• Notably, after sharp declines throughout the summer, New York City office activity has returned to 52% of pre-pandemic levels.

• The VODI remains down 23.3% quarter-over-quarter and 33.3% year-over-year, though the annual comparison is partially due to base effects from a post-vaccine office push in Mid-2021.


• Existing home sales fell by a seasonally adjusted -1.5% month-over-month, its eighth consecutive month of decline as rising interest rates slow homebuying demand.
• Three of the four major regions of the US saw monthly declines, while the West region saw transactions hold steady. First-time buyers accounted for 29% of all home sales in September, holding relatively steady from previous months.

• Despite the weaker number of total sales, more than 25% of homes are selling above their listing price due to “limited inventory,” according to NAR Chief Economist Lawrence Yun. The median sales price for an existing home rose to $384,800, up 8.4% from one year ago.

• Utilizing data from Realtor.com’s Market Trends Report, the metros with the largest increases in list price growth were Miami (+28.3%), Memphis (+27.3%), and Milwaukee (+27.0%). Phoenix registered the highest increase in the percentage of homes that had prices reduced compared to one year ago (+32.3%),
followed by Austin (+27.4%) and Las Vegas (+20.0%).


• According to a recent analysis by Trepp, sublease availability has been growing in smaller US cities over the past many months. In light of declining needs for office space among some of the nation’s largest
employers, several have taken to subleasing to reduce their footprints and costs.

• Trepp’s analysis suggests an inverse relationship between subleasing activity and multifamily rent growth. Metro areas with high living costs, where many residents were lost during the pandemic, generally see higher rates of subleasing activity, notably Los Angeles and Minneapolis. Atlanta is a notable exception,
maintaining strong subleasing activity while having more robust multifamily growth relative to other large metros.

• Several fi rms in California, including Meta, Verizon, and 8×8, have or are implementing plans to sublease their office spaces. The trend also appears to be developing in the life sciences space, with Biogen subletting some 18,000 square feet of space in Cambridge, MA.

• According to the latest release by the Conference Board, consumer confidence decreased in October following consecutive increases in August and September.

• The overall index fell from a reading of 107.8 in September to 102.5 in October, while the “present situation” sub-index, which attempts to reduce the respondents’ inclusion of future expectations, fell even sharper.

• According to the Conference Board’s analysis of the report, inflation concerns ticked up again in September after several months of gradual reduction. The trend is likely connected to the subsequent gasoline and food prices acceleration over the same period.

• Respondents’ vacation plans were also reduced, though interestingly, intentions to purchase a home, an automobile, and other high-priced items rose despite upward pressure on borrowing rates.

• The expectations index declined more modestly than the present situation index but remained close to a reading of 80, a level that the index associated with a recession signal.


• (1) https://www.bea.gov/news/2022/gross-domestic-product-second-quarter-2022-advance-estimate• (2) https://www.federalreserve.gov/monetarypolicy/beigebook202209.htm
• (3) file:///Users/julynovember/Downloads/2210_RCACPPI_US.pdf
• (4) https://www.chandan.com/independentlandlordrentalreport
• (5) https://www.globest.com/2022/10/21/heres-what-prologis-really-thinks-about-the-industrial-sector/
• (6) https://www.yardi.com/blog/matrix/student-housing-earns-high-marks/34436.html
• (7) https://vts.drift.click/october-2022-vodi?utm_medium=email&utm_source=content&utm_
• (8) https://www.nar.realtor/newsroom/existing-home-sales-decreased-1-5-in-september
• (9) https://www.trepp.com/trepptalk/sublease-availability-growing-in-smaller-us-cities
• (10) https://www.conference-board.org/topics/consumer-confi dence

View More Economic Updates:

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