Net Lease News

B+E Weekly Newsletter

July 25 – July 31, 2023

MARKET

FEDERAL RESERVE RESUMES INTEREST RATE HIKES | Bisnow

• The increase came on the heels of positive inflation news earlier this month, but Federal Reserve Chairman Jerome Powell indicated in a press conference Wednesday that although the 3% top-line inflation growth is good news for the economy, a closer look shows that there is still room for the cost of living to come down.
• Core inflation was up 4.8% year-over-year in June. The central bank’s longstanding target for inflation is 2%. Wednesday’s 25-basis-point bump was the 11th increase since early 2022 when the rate was essentially zero.
• Transaction volumes are depressed as sizable bid-ask spreads persist, and debt capital remains more expensive and harder to access. Still, the overall slowing of rate increases and the favorable inflation news has some in CRE feeling hopeful.

U.S. GDP SHOT UP AGAIN IN THE SECOND QUARTER | Fortune

• The U.S. economy surprisingly accelerated to a 2.4% annual growth rate from April through June, showing continued resilience in the face of steadily higher interest rates resulting from the Federal Reserve’s 16-month-long fight to bring down inflation.
• Driving the gain was a burst of business investment, which surged at a 5.7% annual pace, the fastest rate since late 2021. Companies plowed more money into factories and equipment.
• Consumer spending, though, slowed to a 1.6% annual rate, from a 4.2% pace in the first quarter of the year, a likely consequence of higher borrowing costs.
• Higher pay and job security are giving Americans the confidence and financial wherewithal to keep shopping. Indeed, consumer spending, which drives about 70% of economic activity, rose at a 4.2% annual rate from January through March, the fastest quarterly pace in nearly two years.

FED RAISES RATES AGAIN. WHAT WILL MAKE IT STOP? | GlobeSt

• Over the past three months, job gains averaged 244 thousand jobs per month, a pace below that seen earlier in the year but still a strong pace,” he said. “The unemployment rate remains low, at 3.6 percent. 
• Inflation is still far above the 2% the Fed wants to see. “Inflation has moderated somewhat since the middle of last year,” Powell said. “Nonetheless, the process of getting inflation back down to 2 percent has a long way to go.”
• Lag in shelter spot prices and PPI (wholesale prices) getting into final goods and services prices, meaning there should be a good amount more of a decline coming without another hike.  One more meeting of a pause, with two more jobs reports and CPI reports before the next meeting in September would have given enough data to truly determine the best next steps.

RETAIL

SUBWAY SETS SALES RECORDS AHEAD OF REPORTED SALE | QSR Magazine

• The sandwich chain achieved its highest Northern American AUV for three straight months and reached its best weekly AUV in recorded history. In Q1 and Q2 combined, Subway experienced positive traffic across North America and growth in same-store sales, which the brand attributed to menu innovation, modernization of stores, and improvements to the guest experience.
• Subway’s digital sales have more than quadrupled since 2019. In Q1 and Q2, global digit sales increased 11.1 percent. In North America, the channel grew 17.8 percent. The company plans to enhance these efforts even further with a refreshed loyalty program that will be launched later in 2023. 
• Subway ended 2022 with 20,576 units in the U.S., down a net of 3,223 stores from the end of 2019. As part of the company’s multi-year transformational journey, the development strategy has focused on relocating restaurants to more suitable trade areas and opting for multi-brand franchisees with plenty of operating experience. Internationally, Subway has signed 15 master franchise agreements in the past two years.

INDUSTRIAL

INDUSTRIAL’S LOW VACANCY RATE BEST AMONG ASSET CLASSES | GlobeSt

• The industrial sector vacancy rate (4%) was at least 30 basis points below every other major commercial real estate segment in March and transaction velocity has been sharp.
• Rising vacancy rates, though, will temper the pace of rent growth with limited manufacturing facilities under construction, rents should remain above the historical norm.
• The average sale price over the trailing 12-month period ending in June hovered in the low-$150 per square foot range, a slight tick down from the mean through 2022.