Morning Report: Commercial real estate cap rates fall

Vital Statistics:

 LastChange
S&P futures4,060-3.4
Oil (WTI)59.05-0.29
10 year government bond yield 1.66%
30 year fixed rate mortgage 3.29%

Stocks are flattish this morning on no real news. Bonds and MBS are up small.

We will have a lot of Fed-speak today, and the FOMC minutes will be released at 2:00 pm today. The minutes should be an interesting read, and could have the potential to move markets if there are any surprises.

Mortgage applications fell 5% last week as purchases and refis fell by the same amount. Last week contained Passover and Good Friday, which probably depressed the numbers as well. Still, the mortgage market is struggling with higher rates, which are depressing refinancings, and tight inventory which is limiting purchase activity.

Residential real estate is not the only sector that is seeing a flood of investment dollars; commercial real estate is as well. Cap rates (which represent the investor’s anticipated income margin) have hit all-time lows in the net-lease retail and industrial space, according to the Boulder Group. This means that that either (a) rents are depressed and about to go up, or (b) properties are expensive. I found it surprising that cap rates would be the lowest ever coming out of a pandemic, especially in retail.

Industrial rates make sense; the pandemic exposed the issues with companies running lean and mean inventory levels. This is partially why we are seeing just about every commodity in short supply. But retail? Perhaps a consumer spending bet, but I am surprised by that. Mall vacancies rose at a record record pace to hit 11.4%.

Zillow put out its first quarter Population Science Survey which tracks homeowner’s intentions regarding their properties. 14% of homeowners expect to sell in the next 2-3 years. The main reasons to move include the desire for more space, easier commute, and having a home office.

14 Responses

  1. Brave new world:

    Got my first dose today via Westchester County. On the form, you have the following choices for gender:

    W: Woman / Girl
    TW: Transgender Woman / Girl
    M: Man / Boy
    TM Transgender Man / Boy
    NB: Non-Binary Person
    GNC: Gender Non-Conforming
    Q: Not sure / Questioning
    NR: Chose Not To Respond
    GNL: Gender Not Listed

    Oh, and a box for your pronouns.

    Liked by 1 person

  2. This is good:

    Like

  3. This one too:

    Like

    • But things like the smears on DeSantis–the tactics being used–also work against their intended goals (removing DeSantis as a presidential possibility) in addition to making them unpopular. It’s not just their own popularity they need to internalize, but more specifically the unpopularity of their tactics.

      The appearance of desperation and “by any means necessary” draws attention to folks like Trump in 2016 and DeSantis now.

      Like

      • I don’t think these people give a rip about whether their tactics or goals are unpopular.

        They care about brute force, and that is it.

        Like

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