Written by: Harrison LaHaie
What’s in the News
The House passed a bill that would increase the debt ceiling contingent upon spending cuts, putting the ball in the court of the Biden administration and the Senate to stop a default on U.S. debt. The current reports are that the Federal Reserve will raise rates by 25 basis points at their next meeting. China is amid reopening, and the first data suggests that consumer spending is strong, but the manufacturing sector is lagging thus far. Big Tech companies appear to be stabilizing after months of turmoil.
What's Next for CRE
Despite all the bad news for the office sector, there has been some recent reasons to be hopeful. According to VTS’s Office Demand Index, demand for office space rose by 31.3% from February to March nationally. With the pandemic over, increased demand for office space is to be expected as more companies seek to get workers back on site. While office investment is still struggling, leasing in the sector still has plenty of ground to make up. Since Covid only happened 3 years ago, it is difficult to discern long term what the office sector is going to look like. Many predictions about the lessened use of offices require making assumptions that are yet to be proven true. It is highly probable that much of the doom and gloom around the office sector was overblown.
Looking Ahead
All predictions still point to the Fed being in a hiking cycle. Inflation coming down closer to 2% is likely still a key criterion for the Fed to pivot, and the previous reading of CPI at over 5% puts that target far away in the distance. Meanwhile, economic activity has not suffered on a macro basis enough for the Fed to consider stopping its hiking. Construction of infrastructure, residential homes, and remodeling are still strong, which is a signal to the Fed that the economy still has room to run. The labor market remains strong, and although there have been public announcements of layoffs by major tech companies, those layoffs have been contained to the tech industry. Unfortunately, this all means that the Federal Reserve will continue to raise rates. Without a faltering in inflation, in production or the labor market, the Fed will continue to raise rates.
Sources: Globe St, WSJ, First Trust, Federal Reserve.
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