Your Weekly Wrap Up Newsletter #6

Weekly Wrap-Up CRE Newsletter #5

Please enjoy Prosperity CRE’s weekly newsletter designed to keep you informed and engaged with timely commercial real estate issues and data, and other points of interest.

Office Occupancy Hits New Pandemic-Era High
More workers returned to office buildings in the first week of December than at any point in the last 18 months. With more than 60% of the U.S. either partially or fully vaccinated, many workers are expressing a desire to come back to offices https://pcre.xyz/lqt.

Despite Challenges, Retailers Poised for Strong Holiday Season
Despite labor shortages and supply chain disruption, holiday retail sales in November and December are expected to rise 7% - 10.5% from last year’s COVID-constrained levels. Brick-and-mortar retail sales, which were essentially flat last year due to COVID concerns, are expected to rise by 8%, a 10-year high, as shoppers return to stores https://pcre.xyz/j9j.

2021 Will Be the Strongest Year for Job Creation in Modern History
Payrolls expanded by over 6 million jobs this year, building on the 13 million positions recovered in 2020 to return the employment base to within 2.6 percent of the pre-pandemic level. This represents a faster recovery than during the global financial crisis, when it took 26 months for the workforce to climb to within the same margin of the pre-crisis high https://pcre.xyz/vok

National Median Apartment Rent Increases By 17.8%
The 11-month 17.8% rise vastly outstripped rental increases in recent years. Rent growth during the same periods in the years from 2017 to 2019 averaged 2.6%. However, in some areas, rents are now starting to drop. During November, more than half of the largest U.S. apartment markets (53 out of 100) saw a drop in median rents. Among the markets in which rents have started their winter slowdown, many are coastal markets that experienced steep rent drops in 2020, only to see fast rebounds in 2021 https://pcre.xyz/oa0.

Capital Corner

This week had people looking more at Friday's inflation numbers than jobs and unemployment. Indeed today's report of 6.8% year over year inflation growth from November 2020 and a .6% monthly increase from October 2021 has many scratching their heads.

Part of the reason for the confusion is the markets reacted to the inflation news with a "meh..." by actually paring the losses suffered two weeks ago with the Omicron news, and had the S&P 500 increasing .5%, the Nasdaq increasing .6%, and the 10-year treasury dropping to 1.47%. All this non-reaction points to the possibility of today's inflation number actually coming in below where many thought it would https://pcre.xyz/2eq.

So what does this mean for commercial real estate loans? Well, among first slowing of asset purchases will come from a reduction in the Fed purchasing mortgage-backed securities. With this, some liquidity will be taken from the public debt markets, slowing investment and perhaps increasing spreads. As mentioned in a previous newsletter, rate changes generally lag Fed activity, but as a response to inflation, a pandemic, or any other risk-generating scenarios, lenders may be quick to react by trimming the sizing and/or debt yield requirements of the loans they make.

As it stands, many lenders are currently taking a wait-and-see attitude, with cheap capital for commercial real estate readily available. However, lenders are keeping interest rate cap policies in place on originations for floating-rate loans and stressing exit scenarios for fixed-rate loans https://pcre.xyz/zui

We are, however, anticipating a strong Q1 and perhaps Q2 in terms of acquisition lending and don't anticipate a large increase in rates for our upcoming purchases helping us to optimize our cost of capital and pass some of the savings to our investors in the form of cash flow.