

NATIONAL OVERVIEW
The US industrial sector has been the forerunner of commercial real estate over the past decade. And so far, prevailing winds appear to be carrying the sector’s growth forward. In the early 2010s, the industrial sector’s growth was defined by the e-commerce boom, as Amazon carts replaced shopping carts and Cyber Monday became Black Friday for millennials. As a result, retailer demand for warehousing and flex spaces skyrocketed. According to MSCI Real Capital Analytics, industrial property prices grew by an industry-leading 154% over the past ten years and more than 45% since the start of the COVID-19 pandemic.
During the pandemic years, a structural shift in consumer activity amid lagging supply chains brought forward the worst congestion ever since the dawn of widespread containerization. Clogged ports and rising inventories allowed many inland industrial properties to capitalize on new demand. While most supply chain bottlenecks have gradually subsided, the new post-pandemic normal for online consumption keeps industrial in CRE’s driver’s seat.
Like all sectors, recent increases in borrowing costs have dampened transaction activity in the industrial sector. According to the industry group NAIOP, net absorption slowed during the final half of 2022, dropping to 176 million square feet from the 236 million square feet absorbed during the first half of the year. Still, industrial properties have begun 2023 performing better than some expected as demand continues to outpace supply in several key markets.

Data from the February Logistics Managers’ Index (LMI) show a rise in forward-looking sentiment for the warehouse sector. After hitting a nadir in November, the LMI future metric has climbed for three consecutive months and, in February, reached its highest mark since last Summer. Moreover, the LMI future has continued to signal expansion in the sector despite falling throughout Fall 2022 (an index reading above 50 indicates expansion, while below 50 indicates contraction).
Simultaneously, warehouse capacity experienced its first uptick in over two years, with additional supply expected to come online later this year. Still, analysts don’t expect this new supply to roil industrial markets. As Zac Rogers, lead analyst for the LMI, puts it, a modest short-term jump in warehouse capacity “will make it more sustainable over the long run.” Other industry observers appear to agree. In early March, NAIOP raised its projections for net absorption over the next two years, projecting 310 million square feet of absorption in 2023, followed by 323 million in 2024.
Financials
TRANSACTION VOLUME
According to MSCI Real Capital analytics, industrial transaction volume totaled $154.0 billion in 2022 — decreasing 13.3% from the previous year. Despite the year-over-year pull-back, 2022 remains the second-most active year for industrial transaction volume on record.
Compared to the pre-pandemic peak (2019) of $117.6 billion, 2022’s total rose 31.0% higher. Overall, the long-term drivers of the sector’s momentum remain intact. A return to in-store shopping eased the acute demand surge for warehouse and fulfillment space. However, the secular convergence of retail and industrial should be a tailwind for industrial sector demand for the foreseeable future.
According to the 2023 ULI-PwC Emerging Trends in Real Estate Survey, real estate investors gave a net buy rating for all tracked sub-types of industrial, including flex, fulfillment, manufacturing, R&D, and warehouse.
CAP RATES AND PRICES
Despite the long-term optimism surrounding the industrial, the sector’s cap rate profile was subject to the same market forces that saw yields rise for all other commercial property types.
After industrial cap rates sank to a new all-time low of 5.2% in Q1 2022, the effects of rising benchmark interest rates were felt throughout the year. Cap rates rose each of the next three quarters, settling at 5.3% at the end of the year. In total, cap rates rose by 19 bps between Q1 and Q4.

As cap rates have risen, pricing momentum has ebbed in the industrial sector. Still, prices kept rising through the first three quarters of the year, reaching a new all-time high of $164/sqft in Q3.
However, in Q4, slowing growth eventually turned to contraction, and average prices in the industrial sector fell marginally to $158/sqft — sliding 3.7% quarter-over-quarter. Nevertheless, industrial prices remain up by 3.0% from a year earlier despite the single-quarter drop.
Regional Performance2023Regional
In developing the regional industrial rankings, the SVN Research Team utilized a scoring matrix. The matrix offers a comprehensive view of how regional markets are performing within the context of growth from a year earlier, as well as compared to before the pandemic. The eight following criteria were included in the matrix:
- Transaction Volume: 1-Year % Change

- Transaction Volume: % Change Over Pre-Pandemic (2019)
- Share of US Transaction Activity: 1-Year Change
- Share of US Transaction Activity: Change Since Pre-Pandemic
- Cap Rates: 1-Year Change
- Cap Rates: Change Since Pre-Pandemic
- Pricing: 1-Year % Change
- Pricing: % Change Over Pre-Pandemic
TOP PERFORMERS: SOUTHEAST
Echoing a common theme across all commercial real estate verticals, the Southeast again stands out as a top-performing region. The last several years have been a renaissance for commercial real estate in the Southeast, as migration trends have favored the region, causing product demand to surge across property types.
As a result, no region has seen a larger market share increase over the past three years than the Southeast. In 2019, the year before the pandemic, $19.8 billion of industrial assets changed hands in the Southeast, accounting for 17.4% of the nation’s total. In 2022, this total surged to $31.1 billion, accounting for 20.2% of all US activity — a 2.8 percentage point gain in total market share. Southeast industrial assets have also seen some of the most intense pricing pressures in recent years, with valuations rising by 46.0% between 2019 and 2022.
TOP PERFORMERS: SOUTHEAST 
The Mid-Atlantic’s 2022 strong showing crossed over to the industrial sector as well. While transaction volume decreased in the region compared to the year before, it did so by less than any other region. Still accounting for $15.3 billion of traded industrial assets last year, transaction volume only dipped by 4.5% in 2022.
Meanwhile, every other region saw a year-over-year decline in volume between 11.3% and 20.8%. The Mid-Atlantic also managed to buck the 2022 trend of rising cap rates. On average, cap rates for industrial assets dipped by 7 bps in 2022 compared to the year prior — the second-best mark of any region.
Our Orange County commercial real estate brokers will help you every step of the way in finding the right industrial real estate investment property, contact us for details.

SVN Research | State of the Market Report | Retail 2023
NATIONAL OVERVIEW
After benefiting from a pandemic-era boost in spending and consumption, retail sector fundamentals began to waiver during the second half of 2022. Investors inched into 2023 cautiously, but several critical retail growth metrics have continued to trend positively early this year.
Above all, consumer spending continues to defy the damnation of inflation. According to the Bureau of Economic Analysis, personal outlays increased by $312.5 billion in January, growing by 1.8% from December and 8.4% over the last 12 months. As consumption normalizes from sky-high 2021 growth levels, it’s been tempting to view the reversion as an impending headwind for retail. Yet, if inflation’s downtrend continues without significant pain to labor markets, today’s expenditure levels may represent a new equilibrium for consumer spending.
Since monetary policy tightening began in March 2022, consumer spending has grown at an average of 8.4% year-over-year, well above the 4.2% average rate reached during the Fed’s last tightening cycle before the pandemic. Further, during the previous cycle, consumption growth did not substantially slow until COVID-19 hit US shores, and subsequent shutdowns, layoffs, and reduced spending ensued.

Overall, the retail sector continues to go through a reorganization process. At its core, retail real estate is valued by its ability to put goods and services in the hands of consumers. That requires not only a willingness to spend from consumers — but also a preference for how they interact with goods, brands, and services across a digital-physical divide. Increasingly, online retailing has become an incubator of sorts, where successful brands will mature into brick-and-mortar as part of a second-stage expansion. While the US remains over-retailed and the market correction is ongoing, new models of success are emerging. It is not to say that momentum has (or will) suddenly rush in for retail. Still, more and more, it looks like the retail sector’s worst days are in the rearview.
Financials
TRANSACTION VOLUME
According to MSCI Real Capital analytics, retail transaction volume totaled $86.8 billion in 2022 — increasing 5.6% from the previous year. Retail was the only one of the “core four” commercial property types to see an increase last year.
Often, structural forces are more impactful than cyclical ones. The retail sector was already experiencing a secular reorganization when the pandemic hit. Then, the exogenous shock of the shutdown and protracted period of social distancing hyper-accelerated the retail sector’s shakeout. While the process was painful, the sector is starting to see the light on the other side. A combination of the sector having less rightsizing left to do, and retailers experimenting with new hybrid models that blend e-commerce with brick-and-mortar, is fueling optimism for the sector ahead — leading to more investment. Last year marked the first time that retail investment volumes increased in consecutive years since 2015.
CAP RATES AND PRICES
Cap rates in the retail sector followed the trend observed throughout the rest of the commercial real estate ecosystem. As capital sought deals ahead of the Fed’s widely anticipated monetary tightening, cap rates sank to new all-time lows. For retail properties, cap rates reached their low point in Q2, touching down to 6.0%. While cap rates then started picking up in Q3 and Q4, the movements were mild compared to other property types. By the end of the year, cap rates had risen to 6.2%, though they only moved by a total of 13 basis points off their Q2 nadir.

With retail cap rates starting to inch higher, the wind in the sails of pricing has died down. Prices kept on rising through the first three quarters of the year, reaching a new all-time high of $300/sq ft in Q3.
However, reflecting the impact of higher interest rates, pricing started to soften, with retail asset valuations declining to $287/sqft. While prices remain up by 1.6% year-over-year, the drop from the previous quarter was a more substantial — 4.3% — the most significant quarter-over-quarter decrease since 2009.
Regional Performance
In developing the regional retail rankings, the SVN Research Team utilized a scoring matrix. The matrix offers a comprehensive view of how regional markets are performing within the context of growth from a year earlier, as well as compared to before the pandemic. The eight following criteria were included in the matrix:

- Transaction Volume: 1-Year % Change
- Transaction Volume: % Change Over Pre-Pandemic (2019)
- Share of US Transaction Activity: 1-Year Change
- Share of US Transaction Activity: Change Since Pre-Pandemic
- Cap Rates: 1-Year Change
- Cap Rates: Change Since Pre-Pandemic
- Pricing: 1-Year % Change
- Pricing: % Change Over Pre-Pandemic
TOP PERFORMERS: SOUTHEAST
Shockingly, it turns out that attracting many new residents (who also happen to be consumers) into your region is a good thing for retail, too. The Southeast, a hotspot destination for young, starting-out families priced out of affordable housing options in high-cost markets, has seen broad commercial real estate success.
Over the past three years, retail asset prices have soared in the Southeast by 27.9% — blowing past every other corner of the country. The pricing increase comes with more investment dollars targeting retail assets.
All regions saw a rise in retail investment volume between 2019 and 2022. However, these growth rates sat between 6% and 33% for all areas other than the Southeast. Meanwhile, growth in the Southeast lapped the rest of the playing field, jumping by an incredible 75.8% in that time.
TOP PERFORMERS: WEST 
How could the region that boasts Rodeo Drive not pop up here? Anchored by metros such as Los Angeles, San Francisco, Las Vegas, and Salt Lake City, the West has a unique balance of legacy gateway markets and high-growth markets that are starting to show their economic might. No region saw a bigger relative or absolute increase in investment volume than the West.
A total of $22.8 worth of retail assets changed hands in the West last year — $3.9 billion more than in 2021, representing a 20.6% increase. Moreover, after briefly losing its crown as the most active retail investment region in 2021 to the Southeast, the West narrowly recaptured its title in 2022 — securing 26.1% of all retail sales compared to the Southeast’s 26.0%.
We are ready to assist investors with Santa Ana Retail Property For Lease/Sale. For questions about Retail Property Management, contact your Orange County commercial real estate advisors at SVN Vanguard.
1. Q1 2023 GDP
- The US economy grew at an annualized rate of 1.1% during the first quarter of this year, slowing significantly from the Q4 2022 annualized rate of 2.6% and registering well below the Dow Jones consensus forecast of 2.0%.
- Growth in Q1 primarily reflected an increase in consumer spending partially offset by a decrease in private inventory investment.
- The increase in consumer spending was aided by increases in both goods and services spending. Spending on motor vehicles and parts led to goods consumption, while an increase in health care and food services spending carried much of the rise in services.
- Government spending increased during Q1. On the federal level, the increase primarily reflected nondefense expenditures, while on the state and local level reflected a rise in compensation for government employees.
- A pullback in Wholesale Trade growth led to a decrease in private inventory investment, specifically within machinery, equipment, and supplies. Manufacturing also saw a retreat.
- A decline in residential fixed investment was led by a decrease in new single-family home construction.
2. NMHC QUARTERLY SURVEY OF APARTMENT CONDITIONS
- As of the NMHC’s April 2023 survey, apartment investors across the US continue to report a challenging financing environment, with the availability of both debt and equity continuing to shrink.
- A majority (51%) of apartment operators report that conditions in their local markets are looser (higher vacancies, less rent growth) today than three months earlier. 34% of operators said conditions were unchanged compared to three months again, while just 14% reported a tightening.
- While the majority of investors (53%) report that now is a worse time for borrowers than three months ago, this share has started to drop off over the past two quarters. When asked in October 2022, a supermajority (90%) felt that borrowing conditions had worsened, and 0% reported an improvement. Fast forward to the April 2023 survey, this declining share has dropped by 37%, while 12% now say financing conditions are improving.
- Notably, while a majority of investors (64%) anticipate a continued bumpy landing thanks to the Federal Reserve’s monetary tightening cycle, they do not anticipate a recession. Just 21% of respondents expect a hard landing with a recession.
3. CONSUMER CONFIDENCE
- According to data from the Conference Board, consumer confidence fell in April to 101.3, declining from a reading of 104.0 the month before.
- The present situation index, a snapshot of current business and labor market conditions, rose from 148.9 to 151.1.
- The expectations index, based on the shorter-term sentiment of income, business, and labor market conditions, fell from 74.0 to 68.1 in April. Moreover, outside of a brief uptick in December, the expectations index has been below 80 since February 2022.
4. MORTGAGE APPLICATIONS
- Mortgage applications climbed by 3.7% during the week ending on April 21st, 2023, an 8.8% fall in the previous week, 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 in 2023.
- Applications to purchase a home increased by 4.6%, while refinance applications rose by 1.7% during the week ending April 21st.
- Despite recession concerns, markets largely expect a 25 basis points hike by the Fed at their next meeting, which has placed upward pressure on treasury and mortgage rates.
5. OFFICE DEMAND
- Office demand is on the rise again, according to the latest data from VTS. The VTS Office Demand Index (VODI) rose by 31.3% between March and April.
- Historically, the month of March tends to experience a seasonal surge in office demand and occupancy. However, this year’s surge is higher than in the previous five years. Still, since office occupancy remains below pre-COVID levels, similar increases in demand today will have an outsized impact on month-tomonth growth than in previous years.
- That said, the VODI remains 4.5% below its March 2022 level, signaling a continuing long-term recession in office demand. However, the gap is narrowing. In February, the VODI was down by 12.5% from a year earlier.
6. MSCI RCA: APARTMENT
- Apartment cap rates ticked up again in Q1 2023, rising 19 bps from the previous quarter and settling at 5.0%. Compared to one year ago, apartment cap rates are up by 57 bps.
- Trends are similar across sub-asset types within the apartment sector. Both garden-style and mid/ highrise apartments finished Q1 2023 with a 5.0% average cap rate. Moreover, both sub-asset types saw similar quarter-over-quarter changes, with garden and mid/highrise units rising by 17 bps and 18 bps, respectively.
- Apartment transaction volume totaled just $25.4 billion in Q1 2023 — the least active quarter on record since Q2 2020. Volumes declined 52% quarter-over-quarter and 64% year-over-year. Valuations have also fallen for their third consecutive quarter, dropping by 9.4% since reaching a peak in Q2 2022.
7. MSCI RCA: RETAIL
- For a third consecutive quarter, retail cap rates continued rising in Q1 2023. Retail cap rates sat at an average of 6.4% during Q1, rising 17 bps quarter-over-quarter and 34 bps year-over-year.
- Urban storefronts were the only retail sub-type not to see an average quarter-over-quarter cap rate increase, holding at 5.4%. Lifestyle/power centers and single-tenant retail assets also see favorable cap rate trends, posting mild quarter-over-quarter gains while maintaining year-over-year decreases.
- Retail transaction volume increased mildly (+0.1%) in Q1 2023, totaling $16.9 billion in sales. Still, the positive gain is noteworthy as other sectors saw a significant pullback last quarter. Measured, year-over year, retail asset sales are down by 27.4%. Moreover, asset valuations have softened by a cumulative 7.6% over the past two quarters.
8. MSCI RCA: OFFICE
- The office sector has now seen cap rate increases in the past four quarters. Average office cap rates jumped again in Q1 2023, this time by 17 bps to land at 6.7%. Over the past year, office cap rates have risen, on average, by 54 bps.
- Suburban office cap rates have jumped 54 bps in the past year, rising to 6.8% through Q1 2023. Meanwhile, central business district (CBD) office cap rates have risen by a more gradual 32 bps, reaching 5.8%. Notably, CBD office cap rates did not meaningfully compress during 2021 as functional concerns were already impacting pricing.
- Office transaction volume cratered in Q1 2023, with just $10.7 billion worth of assets trading hands. Compared to the prior quarter, trading volumes sank 48.1%. Year-over-year, deal volumes fell 68.4%. Similarly, asset valuations continue to feel the heat of higher interest rates, dropping 2.8% quarter-over-quarter and 9.1% year-over-year.
9. MSCI RCA: INDUSTRIAL
- Despite strong fundamentals, the industrial sector has proven it is not immune to the effects of higher interest rates. Like the office sector, industrial assets have now seen cap rates rise in the past four quarters. Industrial cap rates have risen 12 bps quarter-over-quarter and 35 bps year-over-year through Q1 2023, landing at 5.5%.
- Single-tenant industrial space has seen the most dramatic increase in average cap rates over the past year, rising by 63 bps to 5.7%.
- Transaction volume sank to its lowest quarterly amount in Q1 2023 since 2020, falling to $15.5 billion. The Q1 totals stand a decrease of 47.2% quarter-over-quarter and 54.4% year-over-year.
10. CASE-SHILLER HOME PRICE INDEX
- According to the S&P Case-Shiller National Home Price Index, negative pricing pressures may be starting to ease in the housing sector.
- As of February 2023, for the first time in eight months, home prices did not fall on a month-over-month basis. While the monthly gain was marginal (+0.2%), the directionality is meaningful.
- Through the February 2023 data point, average home prices are down from their June 2023 peak by just 2.7%. While higher interest rates have sapped new homebuyer demand, existing homeowners being locked into low mortgage rates has meant a lack of default distress. As a result, while buying activity has fallen off, the impact on pricing has been marginal.
SUMMARY OF SOURCES
- (1) https://www.bea.gov/data/gdp/gross-domestic-product
- (2) https://www.nmhc.org/research-insight/quarterly-survey/2023/nmhc-quarterly-survey-ofapartment-conditions-april-2023/
- (3) https://www.conference-board.org/topics/consumer-confidence
- (4) https://www.mba.org/news-and-research/newsroom/news/2023/04/26/mortgage-applicationsincrease-in-latest-mba-weekly-survey
- (5) https://view.ceros.com/vts/vts-office-demand-index-april-2023/p/1?utm_medium=email&utm_source=content&utm_campaign=2023-04-26-dta-vodiapril2023report&utm_content=national&mkt_
- (6) https://storage.pardot.com/36252/1681929980GgvZJteN/2304_RCACPPI_US.pdf
- (7) https://storage.pardot.com/36252/1681929980GgvZJteN/2304_RCACPPI_US.pdf
- (8) https://storage.pardot.com/36252/1681929980GgvZJteN/2304_RCACPPI_US.pdf
- (9) https://storage.pardot.com/36252/1681929980GgvZJteN/2304_RCACPPI_US.pdf
- (10) https://www.spglobal.com/spdji/en/index-family/indicators/sp-corelogic-case-shiller/?utm_content=Intl_Indicators&utm_source=google&utm_medium=next_gen&utm_term=home%20price%20indices&utm_campaign=paid_
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Nonetheless, the rise in interest rates is posing problems for both banks and CRE.
It is objectively absurd to be struck in the head by an acorn and believe that the sky is falling, as occurred in the classic folktale. Yet, considering what would happen to CRE lending after two banks fail quickly after one another, particularly in light of the experience of the global financial crisis, isn’t inherently absurd. Nonetheless, it might not be logical.
Although both banking and CRE face challenges from a rapidly rising rate environment, Moody’s Analytics recently stated that when looking at the real cross-exposures of the sectors and structural differences between now and 15 years ago during the Global Financial Crisis (GFC), the conclusions are less sensationalistic and more nuanced than some headlines suggest.
Rising interest rates have already slowed deals and driven valuations lower, the business stated. There will be some CRE loan defaults as refinancing rounds approach. For instance, Veritas Investments, Chetrit Group, Columbia Property Trust, and Brookfield have all missed payments on loans this year. According to M&T Bank, 20% of its office loans are in trouble.
But the details of how these processes might manifest themselves are complicated. For instance, several cite statistics that claim local and regional banks own 70% to 80% of CRE debt. The vulnerability and distribution are more intricate.
However, just 13.8% of the debt on income-producing properties is held by the 135 US regional banks, which are commonly regarded as those with assets between $10 billion and $160 billion, according to Moody’s. The Federal Reserve (Fed), which classifies the top 25 banks as “large,” has 12.1%. 9.6% of the total is held by the 829 community banks (with assets between $1 billion and $10 billion), while the remaining 3.2% is distributed among the 3,726 extremely small neighborhood banks (with assets under $1 billion).
That is to say, the U.S. The CRE debt market is larger and more complex than is typically thought, and major banks as well as a number of non-bank lenders, including mortgage REITs, life insurance companies, and private bridge lenders, may intervene to cover any eventualities.
The distribution of CRE loans among banks was more heterogeneous than was frequently noted, as Marcus & Millichap had recently argued. While acknowledging that some loans would default, John Chang, senior vice president and national director of research and consulting services, said in a business video that most loans wouldn’t.
Yet, there are indications that the stability of banks is continuing. According to Moody’s Analytics, “developments in the Fed’s lending initiatives over the past week have been credit positive and point to likely stabilization.” The total balance sheet of the Fed decreased by $28 billion to $8.76 trillion, and the amount of money the Fed lent to the banking industry fell by $11 billion to $153 billion. The amount of outstanding loans from the Fed’s discount window decreased this week from $110 billion to $88 billion on the asset side of the balance sheet.
We are ready to assist investors with Santa Ana commercial properties. For questions about Commercial Property Management, contact your Orange County commercial real estate advisors at SVN Vanguard.
1. INTEREST RATE IMPACT ON BANK SECURITIES AND CAPITAL
- After recent distress in the banking sector, there is a risk that many of the small and mid-sized banks that hold the bulk of US commercial real estate loans may see a credit crunch, dampening liquidity in the sector.
- According to Goldman Sachs, roughly 80% of all bank loans for CRE come from regional banks, which are most likely to see a tightening of credit and lending standards following the collapse of Silicon Valley Bank.
- CRE fundamentals remain strong relative to the broader US economy. Still, any upcoming refinance activity must factor in higher interest rates and the shifting demand profiles of CRE sectors. This will be of particular concern for low-interest office loans coming due, which will have to contend with higher rates and lower long-term demand.
2. 2023 SCE HOUSING SURVEY
- Households are increasingly expecting home price growth and rents to decline over the near term, according to the New York Fed’s latest Survey of Consumer Expectations Housing Survey.
- Households expect home prices to grow by 2.6% over the next 12 months, down from 7.0% one year ago. Current forward-looking sentiment, which relies on survey data taken in February, is the lowest since the regional bank started conducting the survey in 2014.
- On the other hand, five-year forward expectations rose to 2.8% from 2.2% last year.
- Rents are expected to increase by 8.2% over the next 12 months, which is still a robust estimate, but is down from 11.5% last year. Meanwhile, renters place their probability of owning a home in the future at 44.4%, a tick up from the 43.3% registered one year ago.
- Respondents expect mortgage rates to rise to 8.4% one year from now and 8.8% in three years.
3. JOBLESS CLAIMS
- Initial jobless claims rose higher than expected during the week ending on March 25th, totaling 198,000, which is 7,000 claims above the previous week. Economists forecasted claims to grow to 195,000 during the week.
- While the four-week moving average for initial claims have been steadily rising, they remain relatively benign in the face of higher interest rates and slowing economic activity. Specifically, while forward looking unemployment rate projections continue to rise, employers have been slow to lay off workers, a potentially good sign for the labor market as recession fears grow.
- Continuing claims, which run on a one-week lag, rose by 4,000 during the week to 1.68 million, slightly below estimates.
4. Q4 GDP FINAL NUMBERS
- The Commerce Department slightly revised down its Q4 2022 GDP numbers in its third estimate, released on March 30th. The final metric was marked down to a 2.6% annualized rate, down from the 2.7% previously reported.
- According to the report’s analysis, the downward revision primarily reflects downward revisions to exports and consumer spending. Imports were also revised down, which had an upward effect on GDP.
- Overall, last quarter’s growth was driven by increases in private inventory investment, consumer spending, non-residential fixed investment, and government spending.
- Based on the Atlanta Fed’s GDPNow tracker, growth is estimated to have accelerated during the first three months of 2023. GDPNow currently projects a 3.2% annualized growth rate for the US economy in Q1.
5. MORTGAGE RATES FALL
- According to Freddie Mac, mortgage rates fell to their lowest levels in six weeks during the week ending on March 30th. The 30-year fixed rate fell to 6.32%, down ten basis points from one week prior.
- After reaching a high of 7% last September, mortgage rates declined to close 2022 and fell as low as 6% in January, prompting an 8% jump in pending home sales that month. Rates began to rise again in mid- February as the market priced some uncertainty around the Fed interest rate policy path. The downtrend follows a cautious 25 basis points rate hike by the Fed, which, combined with recent financial market distress, has many forecasting a pause or reduction in interest rates soon.
- Mortgage rates are also declining right as the spring homebuying season begins, which is likely to entice many who have been on the sidelines in recent months back into the market. However, low inventory will remain a challenge and will likely place some upward pressure on home prices if rates continue to trend lower.
6. INDEPENDENT LANDLORD RENTAL PERFORMANCE
- The on-time payment rate in independently operated rental units improved by 186 bps between February and March, coming in at 84.9% and reaching a new post-pandemic high, according to the latest Independent Landlord Rental Performance Report by Chandan Economics. March’s full payment rate is forecasted to land at 94.3% — which would also be a new high.
- National on-time payment rates have now held above 81% for six consecutive months — a first in the life of the Chandan Economics-RentRedi tracking.
- Washington holds the highest on-time payment rate of any state in the country, coming in at 92.8% in March.
- On-time payment rates picked up across all price points in March, with low-priced rentals seeing substantial month-over-month improvement. Meanwhile, 2–4-unit rental properties held the highest on-time payment rates of all sub-property types in March, coming in at 85.6%.
7. NEW & PENDING HOME SALES
- New single-family home sales rose to an annualized rate of 640,000 in February, up 1.1% from January but down by 19.0% year-over-year. It was the third consecutive month where new home sales rose, partly due to a moderation in mortgage rates that has fueled recent homebuying activity.
- Regionally, the South and West US saw transaction increase in the month while the Northeast underperformed.
- Pending home sales similarly grew for the third consecutive month during February, climbing by 0.8% month-over-month, according to the National Association of Realtors. Year-over-year pending transactions fell by 21.1%.
- NAR Chief Economist Lawrence Yun sees the concurring upticks as evidence that the “housing sector’s contraction is coming to an end,” as both sales indicators alongside construction activity have trended up in the past quarter.
8. HOME PRICES
- Home prices continued to decline through January 2023, according to the latest update to the S&P CoreLogic Case-Shiller US National Home Price Index. Compared to June 2022’s peak, average home prices are down 3.0%. Still, measured year-over-year, home prices remain up 3.8% through January.
- Miami (+13.8%), Tampa (+10.5%), and Atlanta (8.4%) reported the highest year-over-year increases within the 20 cities tracked by the index, with Charlotte (+8.1) following close behind. San Francisco, Seattle, San Diego, and Portland registered negative year-over-year growth.
- Before seasonal adjustment, 19 cities tracked reportedly registered a decline in home prices, while 15 cities tracked registered an increase. However, in both seasonally adjusted and non-seasonally adjusted figures, January’s performance was notably better than December’s.
- Regionally, the Southeast (+10.2%) remains the strongest region for growth, while the West (-1.5%) remains the weakest.
9. CONSUMER SENTIMENT
- According to preliminary estimates for March by the University of Michigan, consumer sentiment fell for the first time in four months to an index reading of 63.4. The first estimate for March sits roughly 5% below February’s mark but remains 7% above this time last year.
- All index sub-components worsened during the month, mainly due to persistently high prices of goods and services and financial uncertainty.
- Notably, roughly 85% of responses for the current estimate were made before the collapse of Silicon Valley Bank and other financial market stress, which may signal a downward revision in future updates.
- Year-ahead inflation expectations fell to 3.8% in March, the lowest reading since April 2021. Long-run inflation expectations also declined, falling to 2.8%, only the second time in the past 20 months that the metric dipped below 3.1%. Both expectations metrics remain elevated above their pre-pandemic normal ranges.
10. MAY RATE-HIKE PROBABILITIES
- According to the Chicago Mercantile Exchange’s Fed Watch Tool, futures markets are relatively split on forecasts for May’s policy meeting. The majority of markets (52.9%) are pricing in a pause in the Fed’s interest rate hikes, while a weighty minority (47.1%) expect a 25 basis points hike in May. The current federal funds rate sits at 475-500 basis points.
- Recent US bank failures swung what was initially a firmly hawkish forecast in early March into an increasingly dovish one leading up to the Fed’s March 22nd policy decision. Many investors are betting that the financial market distress, alongside slowing inflation, will encourage the Fed to pause rate increases to provide liquidity to the market. Futures markets now anticipate that the committee will hold rates steady until the September 2023 meeting, when markets expect the Fed to begin loosening again.
SUMMARY OF SOURCES
- (1) https://www.trepp.com/trepptalk/deep-dive-bank-capital-securitiesinterest-rates-fed?utm_campaign=trepploan&utm_medium=email&
hsmi=251654661&_hsenc=p2ANqtz-_uVh7mjFt5IoVvTPpqOczEN4R8Lp9CIf2sh_OTwZkfsEz9jupbdabjVVKmv85Wn4G3bRyzMvyZMuK1IsLM9V7dWB5O3Q&utm_content=251654661&utm_source=hs_email
- (2) https://www.newyorkfed.org/microeconomics/sce/housing#/
- (3) https://www.dol.gov/ui/data.pdf
- (4) https://www.bea.gov/news/2023/gross-domestic-product-fourth-quarter-and-year-2022-thirdestimate-
gdp-industry-and
- (5) https://freddiemac.gcs-web.com/news-releases/news-release-details/mortgage-rates-decreasethird-consecutive-week?_ga=2.192574442.139966936.1680208347-887801833.1680208347&_gac=1.258158200.1680208347.CjwKCAjw5pShBhB_EiwAvmnNV5Ved0ucPaeTCLE6YVjTluDbSfoN-HS6YypEPOi59J2h1C63DVBH7xoCiwIQAvD_BwE
- (6) https://www.chandan.com/independent-landlord-rental-performance-report
- (7) https://www.nar.realtor/newsroom/pending-home-sales-grew-for-third-straight-month-up-0-8-infebruary
- (8) https://www.spglobal.com/spdji/en/index-family/indicators/sp-corelogic-case-shiller/sp-corelogiccase-
shiller-composite/#overview
- (9) http://www.sca.isr.umich.edu/
- (10) https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html
We are ready to assist investors with Santa Ana commercial properties. For questions about Commercial Property Management, contact your Orange County commercial real estate advisors at SVN Vanguard.

SVN | VANGUARD is pleased to announce and welcome new SENIOR VICE PRESIDENT CAMERON JONES who will be leading our Industrial Product Group in Southern California markets. “We are pleased to have Cameron join the firm. Cameron brings nearly 17 years of commercial real estate experience and expertise in industrial real estate advisory to our team said Managing Director, Cameron Irons.
“Joining the innovative national platform of SVN enables me to seamlessly elevate the client experience on both local and national levels. This strategic move empowers me to utilize my market knowledge, harness cutting-edge technology, value added services and tap into an extensive network of advisors enabling me to continue to create opportunities and solve problems for my clients. I’m also excited to be reunited and work with Cameron Irons our Managing Director, for whom I owe my initiation into the CRE brokerage business some 17 years ago.”
Before joining SVN | VANGUARD, Cameron was a principal and partner at Ashwill Associates commercial real estate brokerage. Cameron focused on industrial product and land redevelopment opportunities, advising owners, occupants, and investors in the acquisition, disposition and leasing of properties throughout Southern California and nationally.
For details about any industrial property needs, contact Cameron Jones at 714.240.7078 or cameron.jones@svn.com.
About SVN | Vanguard
SVN | Vanguard with offices in Orange County, San Diego, and South Los Angeles County is a full service commercial real estate brokerage. We provide Sales, Leasing, and Property Management to clients throughout Southern California. In association with SVN’s 200+ offices nationwide combine a comprehensive national footprint with local decision making, expertise and market-leading execution. All SVN® Offices are Independently Owned and Operated.
On Wednesday, the Federal Reserve published its February 2023 Beige Book. The good news is that the situation hasn’t gotten much worse. Which might not seem like much of a consolation, but given the direction things have been going—more rate hikes seem imminent as a result of Fed Chair Jerome Powell’s congressional testimony.
According to the most recent Beige Book, the economy gained some impetus in the first quarter. This can be attributed to stable manufacturing activity and growth in retail sales, according to a report from Oxford Economics. The consequences for monetary policy, however, are minor because it also suggests that wage pressures and consumer price inflation will continue to moderate.The national outlook for commercial real estate activity was solid, with some growth in the industrial market but persistent stagnation in the office market.
According to the Federal Reserve Bank of Boston, the commercial real estate market in the First District has remained largely stable since the beginning of 2023. The industry still experiences low vacancy and high lease demand, although it has recently leveled off. Food and drink are in reasonably high demand. Large-format retailers and department stores have more open positions. Most contacts anticipated a decline in future commercial real estate activity, with the industrial market outperforming other sectors.
Markets in New York were “little changed” at the beginning of 2023. Office availability and vacancies increased significantly in northern New Jersey and New York. Although vacancy rates and retail rents are both marginally down, development has stabilized to some extent.Market players in commercial real estate continued to report stable current construction activity but observed more weakening of the pipeline as more projects were delayed, canceled, or redesigned, according to a report from Philadelphia.
The demand for non-residential buildings in Cleveland slowed, and new projects are frequently self-funded. Real estate developers also blamed decreased demand on consumers’ growing worry over high interest rates and the status of the economy in general.
The CRE activity in Richmond remained constant from the December data. Rent costs have moderated in several sectors, and overall commercial real estate activity has slowed moderately this period due to lessened construction, leasing activity, investment volume, and asset values.Lower-tier office, multifamily, and some retail CRE development in Atlanta decreased. As more firms compelled employees to return to the office, the negative trend in the office sector slowed further; yet, elevated levels of sublease space remained a barrier to market recovery.
Between December and February in Chicago, not much changed. One contact highlighted substantial interest in retail space that had previously been held by large box tenants as evidence that the need for high-quality space was still strong. Overall, prices and rentals increased a little bit, while vacancies and the number of spaces available for subleasing also increased a little bit.Conditions in St. Louis were inconsistent, with low office demand but high industrial demand. Retail has improved, and for the first time since the pandemic began, several projects are “back in demand”. But a lot of projects are on hold as investors wait out the uncertainties surrounding rate increases.
Minneapolis remained steady since the last report, similar to some other areas, with offices struggling as vacancy rates increased as some significant tenants downsized. Industrial activity also remained robust in this area.The situation for multifamily developers in Kansas City worsened from already poor levels. In addition to interest rates, another issue is the unpredictability of the rents that operators can demand.
In Dallas, apartment leasing is “sluggish,” while occupancy and rental rates have stayed stable. Although many people are worried about the building pipeline, with rising capital costs and stricter underwriting, office demand is “lackluster” and industrial demand is still strong.
In San Francisco, CRE activity remained basically constant. With low rates and many vacancies, office demand is still poor, and according to a survey from Nevada, companies showed more interest in acquiring commercial facilities than renting them.
The February jobs data on Friday and the CPI figures on Tuesday are the next challenges.
We are ready to assist investors with Santa Ana commercial properties. For questions about Commercial Property Management, contact your Orange County commercial real estate advisors at SVN Vanguard.
Consumer spending on goods for personal care, wellness, and consumables has not decreased.
Investment forecasts for the single-tenant net lease sector look strong going forward. As household demand for necessities in retail continues to be robust and retail sales data demonstrates that consumers are spending heavily in areas like grocery, personal care, and wellness products.
In a recent study by leading industry professionals, analysts observed that this behavior has the potential to produce record monthly sales totals across various necessity-based categories throughout the year. These projected record sales will have favorable implications for a single-tenant market which is already on a strong foundation to do fare well.
After an eight-quarter period during which tenants absorbed more than 100 million square feet, availability in the STNL sector was historically limited as 2023 got underway. According to researchers, discount restaurants, grocery stores, and medicine stores all have seen extensive demand. Reports state that “restrained development indicates single-tenant availability may hold firm or compress over the near term if additional vendors grow their businesses and backfill available space,” but the approximately 8.8 million square feet of single-tenant space that was under construction at the beginning of 2023 amounted to just 0.1 percent of the existing stock.
All of this is encouraging for investors since it shows that net-lease retail ownership is stable according to basic spending measures. Sales prices for average STNL properties have increased by about 16% over the last five years, and high-credit tenants and buildings with long-term leases in place continue to be investor favorites. According to Marcus & Millichap analysts, “buyers seeking long-term cash flow and less management-intensive properties may capitalize on high pricing in other sectors and move equity into single-tenant assets with high-credit tenants.”
Our Orange County commercial real estate brokers will help you every step of the way in finding the right commercial real estate investment property, contact us for details.
1. HOMEBUILDING SENTIMENT RISES
- 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.
2. FED MEETING MINUTES
- 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.
3. A BUSINESS TRAVEL REBOUND
- 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.
4. INDEPENDENT LANDLORD RENTAL PERFORMANCE
- 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.
5. INDUSTRIAL ORIGINATIONS FALL
- 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%.
6. MSCI-RCA PROPERTY PRICE INDEX
- 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.
7. CPI INFLATION
- 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%.
8. PHILADELPHIA FED MANUFACTURING INDEX
- According to data from the latest Philadelphia Fed Manufacturing Index, manufacturing activity continues 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.
9. NEW RESIDENTIAL CONSTRUCTION
- 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.
10. US RETAIL SALES
- 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.
SUMMARY OF SOURCES
- (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