Written by: Brooke Ferman
What’s in the News
Federal Reserve Chair Jerome Powell hinted at a potential rate hike pause at the annual Jackson Hole economic conference in Wyoming last Friday. He stated, “at upcoming meetings, we will assess our progress based on the totality of the data and the evolving outlook and risks. Based on this assessment, we will proceed carefully as we decide whether to tighten further or, instead, to hold the policy rate constant and await further data.” Powell discussed the economy may not be slowing as much as previously anticipated. However, the Fed remains determined to bring inflation down to two percent.
What's Next for CRE
Due to the housing supply shortage causing increased demand, many are looking into renting apartments. Over 1.2 million apartments have been constructed since the pandemic. This year hits a new peak with 460,860 rentals projected to open by the end of 2023. Growth of this scale hasn’t been seen since the 1970s. Construction costs are continuing to rise, particularly in multifamily. The perimeters housing developers and owners must stay between to be affordable are narrow. It is significant they have insight into the project's needs to guarantee success and accomplish the highest possible valuation.
The office sector’s descending trend remains as the return to the office remains gradual. The Colliers U.S. Office Outlook Report stated that “tenant downsizing has become the norm, with space reductions of at least 20% to 30% being implemented by large occupiers on new leases and renewals. While existing lease obligations will temper the pace of such changes, the net result should be sustained upward pressure on vacancy.”
Looking Ahead
The battle with inflation continues, but the Federal Reserve rejected any thought of changing the two percent inflation goal. Decisions to restore price stability will rely on previous months’ data and evaluation of the risks. While the Fed may be done hiking soon, interest rates will likely stay elevated with the cooling down of the economy. A key component to hitting the two percent inflation target will be the slowing down of labor markets. Looking ahead, it’ll be interesting to assess the theory that wage growth will average with no job losses.
Sources: Globe St, WSJ, Vanguard, S&P Global.
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