SVN | Research Economic Update 10.1.2021

SVN | Research Economic Update 10.1.2021

• According to the Real Capital Analytics commercial property price index (CPPI), asset prices accelerated through August, growing an average of 1.5% from a month earlier. Moreover, the national all-property type CPPI is up a robust 13.5% year-over-year, marking the fastest annual growth since January 2006.
• Apartment assets continue to lead the way, notching the highest annual growth rate of the four major commercial property types. The apartment CPPI grew 1.6% month-over-month and 14.7% year-over-year through August.
• Retail assets posted the best month-over-month growth rate of the core-four property types, gaining 1.9% between July and August. Measured year-over-year retail prices are up by 12.1%.
• Industrial assets continue to plot a robust and consistent growth path, growing 1.3% and 13.6% month-overmonth and year-over-year, respectively.
• Overall, office price growth is the laggard of the pack. Month-over-month prices grew by 1.3%, and the yearover-year tally sits at 11.2%. Trends are divergent between different office subtypes. Central business district located office assets have yet to establish any positive momentum, continuing to post both month-overmonth (-0.05%) and year-over-year (-3.7%) declines. Meanwhile, suburban office price growth has remained resurgent, growing 1.6% from a month earlier and 14.8% from last year.

• NAIOP’s Q3 2021 Industrial demand forecast maintains an overall positive bill of health for the asset class, pointing to a long-term trend of e-commerce adoption that has “no end in sight.”
• For the second half of 2021, NAIOP forecasts that total net absorption for the sector will total 162.6 million square feet, bringing the tally for the annual forecast to 329.5 million square feet. If the forecast holds up, it will represent a sizable 47.4% growth rate from 2020’s mark.
• NAIOP expects that 2022 will be another banner year for the sector, with its current net absorption forecast sitting at 334.6 million square feet.
• The sector’s outperformance is led by coastal port cities, with NAIOP’s report noting that pricing on a per square foot basis is up, vacancy rates are low, and new leases are being signed at a high rate. Despite new and planned deliveries rising to higher marks than in years past, demand continues to outpace supply, sustaining a positive outlook for net absorption trends.

• Trepp recently released the results of its inaugural CRE Market Survey, noting that commercial real estate professionals are both hopeful as well as concerned over structural shifts.
• 90% of the survey respondents expect that office vacancy and effective rents will continue to lag pre-pandemic levels over the next six months. Similarly, 80% of respondents believe that retail occupancy will trail pre-pandemic levels for the next six months.
• On the more optimistic side of the spectrum, 62% and 74% of respondents anticipate that multifamily occupancy and rents would be above pre-pandemic levels in six months, respectively.
• Asked about the effects of regulatory policy in the next 3-4 months (57.9%), new tax policy by April 2022 (63.9%), and interest rate policy (51.7%), a majority of respondents believe the impacts will be broadly negative to CRE.

• On August 26th the U.S. Supreme Court blocked the CDC’s national eviction moratorium, ending protections that had been in place for most renters for much of the pandemic.
• The moratorium was authorized by Congress in the CARES Act of March 2020 but has since expired and resumed by the CDC to prevent a spike in homelessness during the public health crisis. It was then extended by Congress in late-2020, expired again, and temporarily renewed again by the CDC, culminating in legal challenges to the order. The SCOTUS decision comes roughly three weeks after the most recent extension, which paused evictions in regions of the United States with “high” and “substantial” coronavirus spread through October 3rd.
• While the protections have been credited with preventing a wave of evictions during the pandemic, with many renters strained by COVID’s economic impact, the moratorium has also been criticized for leaving landlords left saddled with the financial consequences of unpaid rents. Despite nearly $47 billion in rental assistance approved by Congress over the past year, less than 10% of the funds have reached landlords.

• In recent days the White House has updated its projections for both inflation and economic growth over the next couple of years, forecasting that during 2021, both will reach their highest levels since the early 1980’s.
• According to the Office of Management and Budget (OMB) real-GDP is expected to reach 7.1% in 2021, an increase from the 5.2% growth-rate that Administration officials projected earlier this year. To some degree, the upward revision follows the implementation of the $1.9 American Rescue Plan, which sent consumer spending higher, while firms ramp up hiring and investment to meet demand.

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