After a brief pause in April, which led to some economists predicting a further slowdown in future prices, inflation once again reared its ugly head in May, as prices increased 8.6% annually. This marks the highest inflation rate since 1981. As a result, treasury rates have spiked once again with the ten-year treasury now yielding 3.35%. Equities have sold off across the board, and speculation is emerging that the Fed will increase interest rates 75 basis points at its June meeting. Borrowing costs for real estate investors are rising, especially on floating rate loans. Rates on bridge and construction loans tied to SOFR will likely increase for the remainder of the year. This may make deals harder to pencil for some investors, especially newly formed investment groups or syndicators who have only raised money during the recent low interest rate environment.
While the cost of ownership and investment may be increasing, property fundamentals remain strong and will likely end the year at or above long-term averages. Net effective rents increased another 30 basis points nationwide last week, while leading indicators like traffic and leases were mostly flat. These indicators seem to have plateaued in recent weeks and will likely remain at their current levels before declining modestly in the fall. Occupancy and leased rates were also mostly flat as we approach the midway point in the year.
Key Takeaways – Data as of 6/12/2022:
Traffic and Leases:
Occupancy and Leased Percentage:
Net Effective Rent:
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