Colliers | Columbus
END OF FEBRUARY ECONOMIC UPDATE
Written by: Harrison LaHaie
What’s in the News
President Biden visited Ukraine to meet with President Zelensky roughly one year after the war has begun. The U.S. Department of Energy reported that the origin of COVID-19 was likely from the coronavirus research facility in Wuhan, which the Chinese government vehemently denies. President Biden’s student loan plan may face the Supreme Court if Justices rule that the plaintiffs have standing. OpenAI’s reach continues to proliferate as Snap joins Microsoft and others to implement AI technology into their platform.
What's Next for CRE
Multifamily, alongside industrial, was an extremely successful sector of CRE in 2021 and most of 2022. However, in major metro areas, rent growth has been stagnating. CoStar reported that the new supply for multifamily is the highest in almost 40 years. This may be worrying to some building owners. However, it should be noted, that this is not some unexpected shock to the market. The demand for apartments and housing in general has been high for some time, and there was an upper limit to what rents could be pushed. Rent growth in Florida, Texas, the Sunbelt, and cities with appeal to remote workers was phenomenal in 2021. At a certain point, there is a ceiling of affordability. It seems that has been reached for the time being in those areas. In smaller markets that had more modest rent growth, there will still be room in the next several years for rents to increase.
Economic outlook continues to be about as clear as a muddy pond. Data comes back differently each week, with some weeks good and others bad. It is important to watch the fundamentals and not get caught up on lagging indicators such as employment numbers. Funnily enough, the Federal Reserve, whose interest rates and money supply are essentially the fundamentals for the direction of the economy, relies on lagging indicators to make decisions. Regardless, the Fed’s decisions have major effects. With inflation remaining this high, the Fed is unlikely to cut rates. With rates this high, the economy necessarily must slowdown from when rates were 0%. The low cost of capital just is no longer there. Money supply, which greases the wheels of the global economy, is now growing at 0% per year. These fundamental variables are unavoidable. Until these aspects change, do not expect smooth sailing in the months to come.
Sources: Globe St, WSJ, First Trust, Federal Reserve.