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 committee cited positive economic growth and job gains as well as a strong banking system in their reasoning.
Despite an increase in the Consumer Price Index by 3.7% through August of that year, which was higher than expected, the FOMC chose not to raise rates due to factors such as rising gas prices and increased costs for airfare and vehicle insurance.
A report from Marcus & Millichap titled “Core Inflation Continues to Cool: Implications for Housing, Industrial and Retail Space” suggests that while there may be some signs of inflationary pressure in certain areas like housing costs, overall inflation is still slowing down.
In terms of multifamily properties specifically, rent growth has been minimal with only a slight increase reported by sources like RealPage or Yardi Matrix at around 0.3% -1.5%. This can be attributed partly due to an influx of new units being delivered this year.
On the industrial side, manufacturing demand is expected to rise which could help offset challenges posed by increasing diesel fuel costs for logistics companies. Additionally,the market has seen significant moves from major tenants such as GlobiTech , Tesla ,and LKQ .
Retail properties have performed well so far this year but concerns over consumer spending remain due largely in partto rising gas prices potentially impacting household budgets for goods and services.The report predicts net absorption will stay below average but vacancy rates may see some pressure while asking rents continue on an upward trend historically speaking.
In summary,the current stateof core inflationhas implications across various sectors including commercial real estate.While there are indications that certain areas may experience price hikes,it appears overallinflationis still trending downwards.This analysiswas brought forthby Marcus & Millichap, a leading firm in the industry.
