October 2024 Market Update
Economic Overview:
- Better-than-expected earnings growth, on the back of an economy that is continuing to expand, is likely to drive US stocks higher over the next year. “The idea that the economy is growing suggests that if fair value is around the current level, then the forward trajectory of the index is going to be driven by earnings as opposed to a valuation expansion,” says David Kostin, Goldman Sachs Research’s chief US equity strategist.
- This week’s inflation data provided more evidence that the Federal Reserve is nearing its 2% objective, a mark that Goldman Sachs thinks the central bank may have already hit.
- Also from Goldman, from a policy standpoint, lower inflation keeps open the door for the Fed to keep cutting interest rates.
- JP Morgan Chase “We see the spending patterns as being solid, consistent with the narrative that the consumers are on solid footing and consistent with a strong labor market,” said Chief Financial Officer Jeremy Barnum, describing the dynamic as in line with a “soft landing” scenario.
Commercial Real Estate Market Overview:
Sentiment in Commercial Real Estate is improving, with refinancing and sales volumes beginning to rise. The second quarter of 2024 marked the first quarterly increase in transaction volumes since 2022, primarily driven by the multifamily sector, despite overall activity remaining lower than the previous year. This per Cushman and Wakefield.
The U.S. office sector continues to struggle with high vacancy rates and shifting demand due to hybrid work trends, according to CNBC. Although net absorption turned positive for the first time since 2022, overall vacancies increased to 16.7%, with office prices still significantly below prepandemic levels.
The NAIOP CRE Sentiment Index, which measures industry expectations for commercial real estate market conditions over the next 12 months, has increased significantly from the last survey conducted in the spring. The Index climbed to 56, indicating that respondents expect conditions in commercial real estate development to improve over the next year.
Among the additional key findings:
- Respondents have a positive outlook for every component that comprises the Index except for construction labor costs.
- Respondents expect rising demand and valuations for commercial real estate.
- Expectations of declining interest rates are likely behind much of the improvement in the Index.
- Greater optimism about market conditions is leading developers and building owners to project that their own deal volume will grow over the next year.
- Most respondents expect to be most active in either industrial or multifamily real estate during the next 12 months
Defeasance Market:
- The market continues to be sluggish, much of the defeasance activity continues to be centered around asset sales as well as refinancing on notes with less than 2 years in duration. Lower rates across the board are resulting in more activity in all asset classes.
- The majority of the asset classes being considered includes; Retail, Hospitality, NNN, Industrial as well as some smaller balance notes (i.e. less than 5 million). Retail continues to see much of the activity as these assets are relatively quick to reprice.
