THE NNN MARKET

THE NNN MARKET

By: Tom Georges, Associate Director/Investment Sales, The Stan Johnson Company

Tom Georges was interviewed by Jaime Lacky of Northeast Real Estate Business regarding the state of the net lease market.

Single-tenant investment sales volumes have risen steadily since the end of the Great Recession, with 2015 posting a total of $19.3 billion in the retail sector in the U.S., $21.7 billion in office properties and $22 billion in industrial properties, according to a report by Stan Johnson Company. Northeast Real Estate Business recently spoke with Tom Georges, associate director of Investment Sales with Stan Johnson Company’s New York City office, for insight into the net lease market.

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U.S. Commercial Property Prices Drop for First Time in Six Years

U.S. Commercial Property Prices Drop for First Time in Six Years

U.S. commercial real estate prices dropped in January for the first time since 2010, a sign of weakening demand by investors after a six-year rally that pushed values to records.
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FED MOVE MAY BENEFIT COMMERCIAL REAL ESTATE

FED MOVE MAY BENEFIT COMMERCIAL REAL ESTATE

Fed Makes Long-Awaited Move; End of an Era, Signal of Confidence

  • The U.S. economy passed a major psychological threshold as the Federal Reserve closed the door on the extraordinary measures put in place to combat the financial crisis. With the quarter-point increase of its overnight lending rate, the Fed signaled that the economy has finally returned to normal operating levels. Though some sectors still face headwinds, broader economic measures including employment, retail sales and even home prices have largely returned to healthy performance standards. The Fed’s policy-setting committee reiterated that it will maintain a gradual pace of rate increases, aligning actions with key indicators such as labor market conditions, inflation, and international developments.
  • While short-term lending will be influenced by the Fed’s move, long-term interest rates will face little upward pressure in the immediate future. During 2016, the cost of long-term debt could see upward pressure, but this will be influenced as much by domestic and international confidence as by the central bank’s actions.
  • The move by the Federal Reserve will likely benefit commercial real estate investors, more because of the message it conveys than the influence of the rate change itself. By raising the rate for the first time since 2006, the Fed
    has finally expressed its confidence in economic growth, potentially opening the door to increased consumption and business investment. These positive trends would benefit all commercial real estate sectors as household formations escalate and increased discretionary income supports the demand for housing, retail goods, and business services.
  • The tempo and sustainability of economic growth that swayed the central bank represent a decidedly positive development for the office sector and industrial properties will also benefit from this trend. Additional hiring will generate new office space demand and put downward pressure on vacancy. Also, incremental demand may also emerge in interest-rate-sensitive financial services businesses, contributing to a projected decrease in the U.S. vacancy rate next year. In the industrial sector, a more robust pace of economic growth stemming from higher consumption will stimulate additional space demand from retailers. However, the rate increase will likely also strengthen the dollar, restraining U.S. companies with significant export business.
  • A solid pace of household creation accompanies an economic expansion and will generate new demand for apartments in the near term. U.S. apartment vacancy will fall this year to 4.2 percent and will rise nominally in 2016 as elevated completions narrowly outpace net absorption. Also, the Fed’s benchmark rate most directly affects consumer borrowing for items that include residential mortgages. Any additional tightening in monetary policy that suppresses the purchase of single-family homes and maintains a low rate of homeownership will provide a supplemental lift for the multifamily sector.

 

Source:  http://blog.marcusmillichap.com/2015/12/15/u-s-consumers-get-in-the-holiday-spirit-retail-sales-rise-fueled-by-gains-in-discretionary-categories/

GOLDMAN SACHS CHIEF ECONOMISTS EXPECT 100 BASIS POINT INCREASE IN FED RATE HIKES IN 2016

A piece from Goldman Sachs economists Zach Pandl and Jan Hatzius: – Federal Reserve looks likely to begin raising short-term interest rates in December – Based on our economic forecasts, we currently expect the FOMC to raise the funds rate by 100bp next year:

  • Federal Reserve looks likely to begin raising short-term interest rates in December
  • Based on our economic forecasts, we currently expect the FOMC to raise the funds rate by 100bp next year
  • One hike per quarter
  • We see the risks to this forecasts as skewed to the downside at the moment

For economic growth in 2016:

  • US economy likely to be driven by domestic demand … in particular consumer spending
  • Forecast GDP will increase by 2.25% Q4/Q4 next year
  • Narrow and broad measures of unemployment have fallen significantly

Source: Goldman Sachs chief economist expects 100bp of Fed rate hikes in coming year

Based on this forecast by major economists, how do you see it affecting the real estate market?  Significantly?  Slightly?  Not at all?

Long-Term Residential Mortgage Rates Rise to Over 5%

Freddie Mac recently released the results of its Primary Mortgage Market Survey (PMMS) in which the 30-year fixed-rate mortgage (FRM) averaged 5.05% with an average 0.7 point for the week ending February 25, 2010, up from last week when it averaged 4.93%. Last year at this time, the 30-year FRM averaged 5.07%.

The 15-year FRM this week averaged 4.40% with an average 0.7 point, up from last week when it averaged 4.33%. A year ago at this time, the 15-year FRM averaged 4.68%.

The 5-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 4.16% this week, with an average 0.6 point, up from last week when it averaged 4.12%. A year ago, the 5-year ARM averaged 5.06%.

The 1-year Treasury-indexed ARM averaged 4.15% this week with an average 0.6 point, down from last week when it averaged 4.23%. At this time last year, the 1-year ARM averaged 4.81%.

“Interest rates for 30-year fixed mortgages followed long-term bond yields higher and rose above 5% this week amid a mixed set of economic data reports” said Frank Nothaft, Freddie Mac vice president and chief economist. “For instance, the January producer price index jumped well above the market consensus, but the consumer price index remained subdued and consumer confidence declined to the lowest level since April 2009, according to the Conference Board.

“There were also varying reports as to the current state of the housing market. The S&P/Case-Shiller national home price index rose for the third consecutive quarter in the fourth quarter, albeit at a slower rate, and the 20-city composite index showed an increase in December 2009 for the seventh month in a row; six metropolitan areas experienced positive year-over-year growth, compared to four in November. New home sales, however, unexpectedly slowed in January to the smallest pace since records began in 1963, and the supply of homes at the current sales rate rose to 9.1 months, the most since May 2009.”

For more information, visit www.freddiemac.com.