Net Lease News

B+E Weekly Newsletter

July 30 – August 05, 2024

MARKET

POWELL RAISES HOPES FOR SEPTEMBER RATE CUT | BISNOW

• The Federal Open Market Committee left interest rates unchanged Wednesday, marking the eighth consecutive meeting where it held the central bank’s discount rate between 5.25% and 5.5%.
• “We have made real progress on inflation,” Powell said. “We are not quite there yet. But we are more confident that we’re on a sustainable path down to 2%.”
• Powell presented a case in which a rate cut would be appropriate in September: Inflation moving down quickly in line with expectations, growth remaining strong and the labor market staying consistent with its current condition.
• The personal consumption expenditures price index, the Fed’s preferred inflation gauge, rose 2.5% year-over-year in June, continuing a steady downward trend, although it remains above the Fed’s goal. 
• Once that first rate cut happens, real estate will start looking to understand when the next reductions will happen. An understanding of how often the Fed will lower rates and the long-term rate target is important for setting longer-term yields today and not just in the future.
• As we get to the first rate cut, the focus of the committee will turn to what the shape of the cutting cycle looks like. The shape of the cutting cycle is really much more important for asset pricing, whether it’s real estate or stocks or so on.

INDUSTRIAL

AMAZON BOOSTS SPENDING TO EXPAND WAREHOUSE, DATA CENTER NETWORKS | CoStar

• Amazon is again ramping up spending on its vast fulfillment network as the online retailer and technology giant pushes to boost e-commerce sales by expanding quick deliveries across the United States.
• Amazon has expanded same-day delivery to more than 120 metropolitan areas across the country, and has reached its fastest Prime delivery speeds in record this year, with more than 5 billion items arriving the same or next day globally — an increase of more than 30% year over year.
• Amazon, one of the world’s largest users of warehouse space, is ramping up property investments after cutting back on warehouse and transportation spending in 2023. The company spent a total of $45.9 billion on its fulfillment operations in the first six months of 2024, up from $42.2 billion in the prior period.
• The company had 170 facilities totaling another 64.1 million square feet under development as of March 31 in the United States alone. About 60% of the facilities under construction as of the first quarter were smaller package delivery centers averaging about 160,000 square feet. Another 21 package sorting centers averaging just under 700,000 square feet were also in development.

RETAIL

2024 NET LEASE RETAIL SALES VOLUME & CAP RATES | Commercial Search

• Investors across all groups should be encouraged by the planned growth and expansion of many retailers that have become net lease favorites.
• After an up-and-down year in 2023, the single-tenant net lease retail sector started 2024 on a strong note. In the last three months, investment sales volume totaled $3.9 billion, jumping nearly 59% quarter-to-quarter. This marks the sector’s strongest reporting period since this time last year and puts the market on track to exceed last year’s annual performance, as long as activity remains consistent.
• Investors across all groups should be encouraged by the planned growth and expansion of many retailers that have become net lease favorites. Gas stations, discount retailers, quick service restaurants, and more are among the more aggressively expanding tenants, with some brands committing to open hundreds of new locations in the near-term.

OFFICE

OFFICE MARKET TRENDS: THE WORST IS OFFICIALLY BEHIND US | Globe St.

• Demand for office space has grown for over 12 months, ending the three months through June up 17% year-over-year.
• Sustained increasing demand for office space across the country since late 2022 signals that the bottom of the market has passed. Demand began ticking up in late 2022 and early 2023, and since then, a substantial period of stability and growth within the office market and supporting economic factors signal a rebound.
• The index shows that demand for office space has grown for over 12 months, ending the second quarter up 17% year-over-year and up 34% from the VODI bottom in December 2022.
• Some markets such as Los Angeles and New York City, have experienced healthy growth, while others, such as San Francisco and Washington, D.C., have largely remained unchanged for an extended period. Los Angeles saw demand for office space surge in the second quarter, briefly surpassing its pre-COVID average, with new demand for office space fueled by an increase in the average size of office space employees are seeking.