The Latest Data, News, and Analysis Impacting the Commercial Real Estate Market
Every week, LightBox carefully selects the week’s most impactful economic news, market metrics, in-house data and analysis, and transactions shaping the CRE industry.
In this week’s edition:
- Markets get a boost from the latest round of inflation data
- LightBox highlights major trends in retail sector
- First round of bank earnings shows positive returns for Q4
- Wildfires continue to spread in Los Angeles as costs mount
- New round of multifamily deals puts Denver in the spotlight
- Markets Get a Boost from Latest Round of Inflation Data
On the heels of the stronger-than-expected December jobs report, the market welcomed another round of encouraging news. The latest CPI rose only by a very modest 0.4% above November, bringing the annual rate to 2.9%, while the PPI rose a slim 0.2% in December, less than the 0.4% increase of the prior month. The market responded favorably to this latest round of data with stock market futures surging and the 10-year Treasury yield falling 13 basis points to 4.65% from the 14-month high just a few days earlier.
The LightBox Take: The inflation reports reinforce expectations that the Fed will hold fast to current interest rates and pause on another cut at its January 28-29 meeting. Although the December inflation numbers compared favorably to forecasts, it’s worth noting that they still show that the Fed has work to do to reach its 2% target.
- LightBox Highlights Key Trends Shaping Opportunities in the Retail Sector
In addition to the week’s reassuring inflation reports, the latest round of retail sales data showed strong consumer spending for December after a healthy holiday season. Despite strong overall consumer spending, Macy’s and Kohl’s announced plans to close nearly 100 stores combined in early 2025 as the companies streamline operations to boost profitability. Store closures, retailers’ expansion plans, and healthy consumer spending are just a few trends highlighted in LightBox’s latest research on the forces that will influence investment and lending activity in the retail sector this year. Retailers are facing an evolving landscape shaped by economic pressures, competitive pressures, technological advancements, heightened demand for personalized experiences, and the pressing need to align with consumers’ growing focus on value. With store closures outnumbering openings in 2024 for the first time in three years, investors will have more opportunities to backfill vacancies with new tenants this year.
The LightBox Take: The retail sector is poised for an active 2025 in contrast to the retail apocalypse predictions of just a few years ago. Brick and mortar retail struggled during the pandemic as e-commerce thrived, but retail has emerged as a dynamic asset class through responsive, aggressive, and creative reinvention concepts, especially by major retailers like Walmart, Costco, and Target. Given record-low vacancies and strong tenant demand, a growing number of investors now have retail in their crosshairs, particularly grocery-anchored centers that are replacing big box stores and smaller spaces in suburban locations with high work-from-home populations.
- First Round of Bank Earnings Point to Positive Returns for the Fourth Quarter
Big banks kicked off earnings season with bullish results in the first batch of fourth-quarter earnings reports. The strong results are attributed to strong economic growth, lower interest rates, and a jolt of post-election investor enthusiasm. Among the strong results, Goldman Sachs has its highest quarterly profit since the third quarter of 2021, and Bank of America’s profit more than doubled to $6.67 billion. In CRE lending, however, reports were less sanguine. JPMorgan Chase reported that its CRE loan volume was flat in Q4 as new originations were offset by paydowns, while Wells Fargo pointed to still-weak fundamentals in the office market with the expectation that its CRE office losses “will be lumpy as we continue to actively work with our clients.” In a promising wrinkle, however, Wells reported that its nonperforming assets declined 5% from the third quarter, driven by a $390 million decline in CRE office nonaccrual loans.
The LightBox Take: Based on feedback from last week’s CREFC conference in Florida, optimism about both transaction volume and financing activity this year is widespread with many large banks back to growing their balance sheets with CRE loans and increasing their commercial mortgage-backed securities (CMBS) production. Despite the bullishness, bank executives are not blind to significant uncertainty around policies such as government spending and tariffs.
- Wildfires Continue to Spread in Los Angeles as Costs Mount
Although it’s still too early to take full stock of the impact of the fires across Los Angeles, the destruction so far has displaced over 100,000 residents and destroyed at least 12,000 structures. AccuWeather estimates that the full economic loss could be as high as $250 billion and $275 billion. The area’s sewer, water, and power infrastructure has been significantly damaged, and concerns about insurance are mingling with more immediate worries about public safety. An analysis by JPMorgan last week estimated that insured losses alone could top $20 billion, while Wells Fargo’s estimate from the weekend put insured losses at $30 billion within a range of $20 billion to $40 billion.
The LightBox Take: With the fires still not contained, attention will soon turn to the reconstruction of damaged homes, businesses, roads, and infrastructure. At the same time, the fires bring into focus the challenge of the rising cost of property insurance, which was already prohibitively expensive or unavailable in many areas of California. Major construction firms are mobilizing for recovery and rebuilding efforts, and the focus will be on building resiliency measures and retrofits that can mitigate wildfire risks.
- New round of multifamily deals puts Denver in the spotlight
Over the past two months, LightBox tracked a strong wave of 15 major multifamily deals of $80 million or more concentrated in the Denver metro. One-third of those deals closed in the final weeks of the year after an already-encouraging surge in November with buyers like Bell Partners, Mesirow, and Berkshire Residential Investments. Across the recent deals, the average sales price for a Denver multifamily approached $330,000 per unit.
The LightBox Take: Multifamily investment was strong in 2024 across the U.S. as investors jumped on opportunities for apartment buildings with stable cash flows in metros with strong populations, favorable economies, and strong demand for rental housing. Late-year activity positioned Denver as a standout market, alongside Austin, Dallas, Atlanta, and Phoenix, thanks to low vacancies, steady rent growth, and record population gains.
Important dates and industry events this week
- Monday, January 20:
- Observation of Martin Luther King, Jr. Day (markets are closed)
- Wednesday, January 22
- U.S. leading economic indicators
- Thursday, January 23
- Initial jobless claims
- Friday, January 24
- Existing home sales
- Consumer sentiment
- January 20-23
- NAI Global Annual Convention, Miami, FL
Did You Know of the Week
Did You Know that a LightBox analysis of transactions reveals that office deals in many U.S. metros are falling between fairly narrow bands? This suggests that a bottom has formed—and much faster than in the two previous downturns. In metros like San Francisco, Chicago, Washington D.C., and New York, sales comps show discounts as high as 75% for older, obsolete offices, but the real story is that the office sector is finding its middle ground as the majority of sales are coalescing around a narrow range of prices per square foot. This stabilization is a critical development because it will encourage more buyers to take the plunge into the distressed asset market this year.
For commentary on these CRE developments and more, tune in to the LightBox CRE Weekly Digest podcast.
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