The Federal Reserve recently released a press release on September 20, 2023, justifying its decision to maintain the Effective Federal Funds Rate (EFFR) within the range of 5.25% to 5.5%. The Fed cited economic expansion at a solid pace, continued job gains and low unemployment rates, as well as a strong and resilient U.S. banking system.
Despite an increase in the Consumer Price Index by 3.7% through August of that year – higher than July’s reported rate of 3.2%, with gas prices and transportation costs contributing to this rise – the Federal Open Market Committee (FOMC) chose not to raise interest rates.
According to Marcus & Millichap’s report titled “Core Inflation Continues To Cool: Implications for Housing, Industrial and Retail Space,” while there may be indications of price hikes in certain metrics, inflation is still expected to slow down overall due its cyclical nature.
In terms of specific sectors impacted by inflation:
Multifamily – Rent Growth Slows Down
Although shelter index increased by over seven percent year-over-year in August , it has been steadily decreasing since November last year due mainly because rent growth has slowed down significantly during this period according Marcus & Millichap analysts . This is also attributed partly due annual leases being taken into account when calculating these figures which do not reflect current market conditions accurately enough yet . According RealPage or Yardi Matrix data , multifamily rent growth only saw marginal increases between zero point three percent up until one point five percent respectively .
With more than two hundred thousand units projected for completion before end-of-year , we can expect rent growth continue creeping along slowly .
Industrial – Manufacturing Demand Could Help Boost Sector
While logistics companies are facing challenges from rising diesel fuel costs , manufacturers are seeing some relief thanks lower natural gas prices . Additionally recent moves tenants like GlobiTech Tesla LKQ have created 12,000 new jobs in this sector . With ongoing demand expected to keep vacancies below long-term mean of seven point one percent .
Retail – Consumer Spending Remains A Concern
Despite strong performance early 2023 , retail properties could be impacted by higher gas prices as households may have less disposable income for goods and services. This could potentially discourage retailers from expanding their footprints. While net absorption is projected to remain below the long-term average of eighty-seven million square feet, a moderate number deliveries will likely put pressure on national vacancy rates while keeping asking rent growth historically high.
This analysis was originally published on Connect CRE’s website.
