Written by: Harrison LaHaie
What’s in the News
Stocks landed lower ahead of more earnings reports and the Federal Reserve’s meeting on February 1st. The U.S. and Germany have pledged to send tanks to Ukraine in response to calls from Ukrainian President Zelensky. Bed Bath and Beyond faces the threat of bankruptcy as interest payments are due after they were unable to make previous loan payments. Retail sales have fallen in three of the last four months, signaling that consumer spending could be headed for a slowdown, meaning the economy’s primary economic driver may be slowing.
What's Next for CRE
Aside from the obstacles that high rates cause for commercial real estate sales, there have been some structural changes in the market since the wind down of the pandemic. In particular, the office sector has felt the effect of remote work becoming more common. Kastle Systems, a key access company, has reported that according to their data, the return to the office in the top ten metro areas remains at only 50%. It is not clear if this trend will remain long-term. With potential economic hardship coming and mass layoffs already occurring in the tech sector, there may be yet another push for return to the office. If business begins to get tight, employers may want their workers back in the office to better monitor productivity. A recession this year could in the long-term be beneficial for the office market.
Looking Ahead
Some of the economic indicators that have come out recently, such as retail sales in decline, GDP growth being half-comprised of inventory growth and showing weakness in investment, and so on have begun to show that this much talked about recession may finally arrive in the next 6 months. Being that it is unlikely that the Federal Reserve will pivot, the tight financial conditions which currently have slowed the economy may continue. Inflation, though waning, remains far above the Fed’s 2% target. Economic conditions remain foreboding, but with all the noise these past twelve months, it is difficult to try to predict if and when a recession will occur. Regardless, the recent data does not look great.
Sources: Globe St, WSJ, First Trust, Federal Reserve.