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This week, the volatility in the market shifted from last week’s panic and stock sell-off to relief and encouragement in the wake of a mix of reassuring economic data.
Here is our top 5 list of the week’s biggest commercial real estate (CRE) developments and why they matter:
- Inflation hits a three-year low setting the stage for an almost-certain interest rate cut.
In stark contrast with last week’s stock market scare, stock prices jumped this week after investors’ nerves were soothed by an inflation rate that dipped below 3% for the first time since 2021, as well as lighter-than-expected jobless claims.
Why it matters: Although inflation is still below the 2% target, this week’s news paves the way to an interest rate cut next month. As the Fed balances the need to get inflation down to the 2% target without triggering a recession and high unemployment, this week’s developments were undoubtedly reassuring.
- Major retailers point to still-healthy consumer spending.
Home Depot’s announcement that sales were weakening, driven by a decline in DIY spending, and that annual sales were expected to decline 3-4%, fueled concerns that consumer spending may have peaked. By week’s end, however, Walmart announced that store sales increased 4.2%, surpassing expectations, and overall retail sales data surprised on the upside with a 1% increase in July, a strong turnaround from June’s decline of 0.2%.
Why it matters: Strong consumer spending is tied directly to the health of the U.S. economy so the outlook from major retailers provides reassurance that the economy is not heading into recessionary conditions.
- Zoning assessments up 27% YoY at midyear in a healthy sign for transactions and redevelopment.
Midyear data from PZR, LightBox’s zoning assessment business, shows that zoning assessment activity, a cornerstone of due diligence, increased a healthy 27% year over year, led by multifamily and warehouse projects. The sharpest growth rates could be found in self-storage, industrial, and hospitality.
Why it matters: Shifts in the volume of zoning reports are valuable for tracking trends in CRE development and investment opportunities, particularly at this stage of the market recovery when so many commercial properties are moving from one use to another (e.g., office to multifamily, mall to mixed use, etc.). The robust 27% increase at midyear is a comforting measure that projects are moving forward despite still-high interest rates.
- Brave developers move forward with office-to-residential conversions in metros like Manhattan and LA.
Elad Group, GFP, TPG Real Estate, and RXR are making headlines with plans to redevelop office buildings into condominiums or apartments.
Why it matters: While these projects are complex, costly, and not for the faint of heart, if the redevelopment gamble pays off for these early movers, others are sure to move in and explore opportunities to convert obsolete office space into residential uses.
- Big multifamily deals could signal expectation of a sector turnaround.
Buyers like Equity Residential, SCS Development Company, and Avalon Bay in high-population growth metros like Atlanta, Denver, and Dallas/Fort Worth closed transactions for apartment complexes and portfolios as property owners struggle to raise rents during the biggest construction boom in 40 years.
Why it matters: The flurry of big deals in multifamily could indicate that more investors are anticipating a rebound in rental rates and property values, especially as the glut of new supply is absorbed as development cools in some previous hot spots. Investor interest in the multifamily sector has exceeded the national average, as evidenced by the higher average number of non-disclosure agreements (NDAs) per listing on the LightBox RCM platform.
For more commentary on these CRE developments and more, tune in to the LightBox CRE Weekly Digest podcast.
