CRE This Week - What's impacting the United States market?
December 16, 2024 - US commercial real estate news, macroeconomic indicators and market analysis.
Week of December 16, 2024
Welcome to the latest edition of CRE This Week, curated by Altus Group’s US research team.
Our team has handpicked pertinent and noteworthy market indicators, articles, original research, and significant industry dates that are critical to the US commercial real estate sector. We understand that your time is valuable, so we're excited to deliver research that helps you stay informed and saves you some time each Monday morning.
For more key economic indicators that matter to commercial real estate, see Top Indicators by Major Asset Type.
Economic print
Macro economic factors impacting CRE
NFIB Small Business Optimism Index
The National Federation of Independent Business released the Small Business Optimism Index (SBOI) for November on December 10. NFIB reported that the SBOI rose eight points month-over-month to 101.7.
The latest readout, the first since the U.S. presidential election results, hit its highest mark since June 2021 and finally broke a 34-month streak below the long-term average of 98. Notably, much of this surge was driven by “soft” sentiment indicators. For example, the net share of small business owners expecting the economy to improve jumped by 41 points to 36%, while those anticipating higher real sales rose 18 points to 14%. The percentage saying it’s a good time to expand also increased by 8 points to 14%.
While these results reflect improved sentiment, it’s still unclear whether the optimism will translate into tangible actions – such as new hiring or capital investments – that directly influence commercial real estate demand. That said, the improved positivity heading into 2025 is a welcome sign.
The U.S. Bureau of Labor Statistics released the Consumer Price Index (CPI) for November on December 11. The release showed that CPI for all urban consumers rose 0.3% month-over-month and 2.7% year-over-year.
Core CPI, which strips out volatile food and energy prices, rose 0.3% month-over-month and 3.3% year-over-year. Lagging shelter inflation remains a key driver of both headline and core CPI, which is one reason the Federal Reserve prefers the Personal Consumption Expenditures (PCE) Index to measure inflation. The still-elevated pricing pressure complicates the outlook for future interest rate decisions. Despite this, as of December 13, the CME FedWatch tool indicated the markets are pricing in a 25 basis point rate cut with near certainty for the December 18th Fed meeting.
The U.S. Bureau of Labor Statistics released the Producer Price Index (PPI) for November on December 12. The release showed that PPI for final demand rose 0.4% month-over-month and 3.0% year-over-year.
Annual producer price growth rose from 2.4% in October to 3.0% in November, marking the largest rise since February 2023. This continues a troubling trend of accelerating price growth since June 2023. For CRE owners, the stubborn inflation and persistent pricing pressures may not directly impact property performance and investment activity, but do complicate the monetary policy outlook and call into question the expected pacing and degree of interest rate cuts over the coming year.
News
News to know
Macy’s new activist wants retailer to create real estate arm | Bloomberg, December 9, 2024
Activist investors Barington Capital Group and Thor Equities are pushing Macy’s to unlock more value from its real estate and luxury brands. They suggest forming a dedicated real estate arm, cutting capital spending, and possibly spinning off Bloomingdale’s and Bluemercury. Thor’s Chairman Joseph Sitt believes Macy’s leadership lacks real estate expertise and should consider leasing part of its massive Herald Square flagship to better understand its value.
As millennials seek suburban living without the costs of homeownership, upscale single-family rentals are emerging as a strong alternative. Developers, including REITs like AvalonBay Communities, are jumping into the build-to-rent market. AvalonBay’s recent $49 million purchase of 126 townhomes in Bee Cave, Texas, marks its first foray into the sector, with plans to invest over $1 billion more. The firm’s CIO, Matt Birenbaum, calls it the start of a significant new asset class.
52% of Federal office leases can be terminated by end of Trump's term | BisNow, December 10, 2024
More than half of the federal government’s leased office space will either expire or face termination options by the end of 2028. According to S&P Global Ratings data, roughly 59.2 million square feet will be up for renewal, with another 18.5 million square feet eligible for termination. The General Services Administration, which manages federal real estate, currently oversees about 149.4 million square feet of leased space, down from 167.4 million in 2015, reflecting ongoing efforts by both Republican and Democratic administrations to reduce the government’s footprint. This large volume of impending lease expirations is expected to create a heavy workload for the GSA in the coming years.
Judge blocks $25B Kroger-Albertsons grocery merger | ConnectCRE, December 11, 2024
A planned $24.6 billion merger between Kroger and Albertsons has been halted by judicial intervention at both the federal and state levels. Following a three-week hearing, a U.S. District Court judge issued a preliminary injunction, while a judge in Washington imposed a permanent injunction, citing concerns that the merger would reduce competition and violate consumer-protection laws. In response, Albertsons decided to terminate the merger agreement, which the two chains entered more than two years ago.
Office delinquencies to top 14% by the end of 2025 | GlobeSt, December 12, 2024
Moody’s projects office market conditions will worsen through 2025, with rents remaining weak and vacancies elevated due to hybrid work and tenants cutting space. Although loan repayment rates may tick up slightly, high vacancies will give occupiers more negotiating power, pushing leases to reset lower. Moody’s expects office delinquency rates to rise above 14% before 2026, up from 11% in late 2024. Overbuilding in select metros adds pressure. In Austin, strong job growth hasn’t prevented asking rents from falling by about 10%, as supply still outpaces demand. San Francisco has experienced the steepest revenue declines since the pandemic began. Commute times and amenities also matter. Markets like Midtown Manhattan outperform more remote office locations because of easier access via major transit hubs, underscoring the importance of convenience in encouraging employees to return.
Research Spotlight
Catch the latest insights from the Altus team
Insight | US commercial real estate transaction analysis – Q3 2024
There was a real change of tune through the third quarter, as many of the large institutional investors and owners of commercial real estate expressed growing optimism for the asset class over the coming years. However, despite the improved sentiment and outlooks for US CRE, market activity continued to be stagnant in Q3 2024.
Check out our US transaction analysis for Q3 2024, which includes US CRE transaction activity across all property types.
Important dates
Upcoming data releases and events
Data releases (Times in EST)
Monday, December 16
8:30AM: Empire State Manufacturing Survey, Data Release
9:45AM: S&P Flash US Services PMI, Data Release
9:45AM: S&P Flash US Services PMI, Data Release
Tuesday, December 17
8:30AM: Retail Sales, Data Release
9:15AM: Industrial Production, Data Release
10:00AM: Home Builder Confidence Index, Data Release
Wednesday, December 18
8:30AM: Housing Starts, Data Release
8:30AM: Building Permits, Data Release
8:30AM: FOMC Interest Rate Decision, Data Release
Thursday, December 19
8:30AM: GDP Second Revision, Data Release
10:00AM:Existing Home Sales, Data Release
10:00AM: US Leading Economic Indicators, Data Release
Friday December 20
8:30AM: Personal Consumption Expenditures Price Index, Data Release
8:30AM: Consumer Sentiment, Data Release
About our research team
Omar Eltorai
Research Director
Altus Group
Omar Eltorai is a Research Director at Altus Group. With more than a decade of experience in the industry in investment management and financing roles,
Omar's focus is on macro, capital and market trends affecting the US CRE market. Beyond regularly authoring articles and reports, his commentary and analysis has been featured in various media publications, including: Wall Street Journal, Globe Street, and Yahoo! Finance.
Cole Perry
Associate Director of Research
Altus Group
Cole Perry is a Associate Director of Research with Altus Group's Research team. In this role, Cole delivers key insights into macroeconomics, capital markets, and the broader commercial real estate sector.
Cole boasts a rich background in Commercial Real Estate analytics with previous roles at CompStak and Brixmor Property Group. He holds dual M.S. degrees from Columbia University in Urban Planning and Real Estate Development.
Disclaimer: The opinions expressed in this newsletter are solely those of the authors and are not endorsed by Altus Group Limited, its affiliates and its related entities (collectively “Altus Group”). This publication has been prepared for general guidance on matters of interest only and does not constitute professional advice or services of Altus Group. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy, completeness or reliability of the information contained in this publication, or the suitability of the information for a particular purpose. To the extent permitted by law, Altus Group does not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it. The distribution of this publication to you does not create, extend or revive a client relationship between Altus Group and you or any other person or entity. This publication, or any part thereof, may not be reproduced or distributed in any form for any purpose without the express written consent of Altus Group.
Resources
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Nov 28, 2024