SVN | Research Economic Update 9.3.2021

• According to the Real Capital Analytics commercial property price index (CPPI), commercial property prices maintained their momentum through July, growing an average of 1.2% from a month earlier. Moreover, the national all-property type CPPI is up a robust 11.8% year-over-year, marking the fastest annual growth since 2006.
• Apartment assets continue to lead the way, notching the highest growth of all commercial property types. In July, the apartment CPPI grew 1.6% month-over-month and 13.5% year-over-year, both of which led all other tracked property types.
• Retail assets posted the next best month-over-month growth rate of the core-four property types, gaining 1.2% between June and July. However, measured year-over-year retail prices are by just 7.5%, which remains the lowest mark across the major property types.
• Industrial assets continue to plot a path of robust growth, growing 1.1% and 11.8% month-over-month and year-over-year, respectively.
• Overall, office price growth sits at 1.0% month-over-month and 8.8% year-over-year. However, the story across office subtypes tells bifurcating story. Central business district located office assets have yet to be able to establish any positive momentum, posting price declines of -0.1% month-over-month and -4.6% year-over-year. Meanwhile, suburban office price growth has remained strong, growing 1.3% from a month earlier and 11.7% from last year.

• According to new survey research from Pew Research Center, an increasing share of Americans are willing to live further away from urban amenities if it means that they can live in larger homes.
• Given two options, large homes with few urban amenities or small homes with many walkable amenities, the U.S. was almost evenly split the last time Pew asked this question in September 2019. Two years ago, 53% preferred the large home vs. 47% who preferred urban settings.
• In the July 2021 edition of the survey, a lopsided 60% preferred the option of large homes with few walkable amenities compared to 39% who preferred smaller homes in urban settings.
• Measured across every subset of race, age group, political affiliation, and educational attainment, the directionality of results were the same, with every group observing a preferential shift toward larger housing options with few urban amenities.
• The permanence of COVID accelerated migration patterns will be a developing story to watch in the years to come. However, a desire by employers to get their workforce back into the office is leading to optimism for a post-COVID reversion back to urban life. At the same time, WFH accessibility tools and greater employer-comfortability with WFH may contribute to a long-term shift toward remote work adoption.

• 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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