Limon Net Lease Group

Archives for September 2022

What the 5th Fed Rate Increase Means for Investors

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How FED Rate Hike Impacts the Commercial real estate outlook

Takeaways From September Fed Meeting

  • The Fed reiterated its commitment to preserving stable prices and moving inflation back to 2.0%
  • They raised interest rates 75 basis points, projected another 125-basis point rise before the end of 2022
  • Indicated a 4.4% unemployment rate may be needed to balance the labor market and control inflation

Why Rising Rates Matter For Investors

  • Rising capital costs are squeezing levered yields; buyer underwriting becoming increasingly conservative
  • As market recalibrates sellers must review market pricing to align with buyer expectations

How This Impacts Commercial Real Estate Transactions

  • Expectation gap emerging between buyers and sellers
  • Recalibration of the transaction market is needed for buyers and sellers to reach market clearing sales prices

*Through September 22
Includes apartment, retail, office, and industrial sales $1 million and greater
Sources: Marcus & Millichap Research Services, CoStar Group, Inc., Real Capital Analytics, Federal Reserve

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Return to Office Outlook

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How the Labor Shortage Shapes Commercial Real Estate Trends

Role of Labor Markets in Return-to-Office Decisions

  • Health concerns were original reason for remote work, but worker preferences are now the biggest hurdle
  • Strong job gains continue to support consumption and CRE space demand
  • The U.S. currently has a substantial labor shortage which drives continued remote work trends

What it Could Take to Resolve the Labor Shortage

  • Overall unemployment rate is 3.7% and just 1.9% for college educated workers
  • Severe shift necessary to re-align employment trends

What this Means for Commercial Real Estate?

  • Remote work benefits suburban CRE space demand
  • Return-to-office would boost urban CRE demand
  • Lingering labor shortage a headwind for service staff dependent CRE like hotels and seniors housing

*Through July, Unemployed through August
Sources: Marcus & Millichap Research Services, BLS

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2H 2022 – Investor Sentiment Survey Results

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New Investor Sentiment Survey Results for 2H 2022

Investor Sentiment Modestly Retracts in Second Half

  • Investor sentiment dipped 11 points in 2H 2022, reminiscent of 2016
  • Interest rates and inflation ranked as top two concerns

Investor Decisions Not Curtailed by Economic Headwinds

  • Rising interest rates only modestly tapering buyer intent
  • Most investors indicated they would not change their investment decisions based on elevated inflation

Investors Divided on Rate Hikes Impact on Cap Rates

  • Half of investors believe cap rates will rise, but half expect them to remain stable or fall
  • Sentiment suggests activity going into 2023 will remain strong by historical standards

*Trailing 12 months through 2Q
Includes Apartment, Retail, Office and Industrial sales $1 million and greater
Sources: Marcus & Millichap Research Services, CoStar Group, Inc., Real Capital Analytics, M&M/WMRE Investor Survey

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