NAI SunVista News

Architecture in the U.S. is unique and timeless. Even our modern structures have a classic and familiar feel to them. From Fallingwater in Mill Run, PA, to 1111 Lincoln Road in Miami Beach, FL, the creativity is endless. If you are still planning your summer vacation, do not forget to include site-seeing some amazing architecture in your itinerary. What else do you plan to do this summer? My summer vacations include riding our motorcycle in the mountains as well as a long weekend get-a-way with our children and grandchildren where we will enjoy both swimming and age-appropriate museums.

A summer of interest rate hikes? Most likely. Minutes from The Federal Reserve’s June meeting made it clear officials are eager to move rates up to a point where they are weighing on growth as policymakers ramp up their battle against inflation. The ramp up seems to be working as inflation hit 9.1% this month. Federal Reserve chair, Jerome Powell, has said central bankers will debate a 0.5 or 0.75 percentage point increase at their July meeting. Billionaire Sam Zell does not believe the U.S. is currently in a recession, and insists that “interest rates could go up a couple hundred basis points” without necessarily inducing a recession. Watch for the Feds announcement on July 27, 2022 after June’s latest job numbers and updated Consumer Price Index (CPI) inflation figures are released.

Can the average consumer wait out inflation? Probably not. Even with all of the shutdowns, because of the federal fiscal aid, people survived, and many increased their savings. After all, where were they going to spend their money? Unfortunately, the inflation wave has kicked up costs for consumer at a year-over-year rate of 8.6%. Credit card use is rising while savings are dropping. The hope of economists that most consumers would be able to hold out until inflation cooled is now up in smoke signaling big trouble for the economy. As savings balances drop and credit limits are pushed, eventually a time will come when more and more consumers have to slow their spending. This is a disaster for the economy!

Despite mounting economic headwinds, commercial real estate deal volume is expected to remain high in the second half of 2022, according to PwC’s midyear outlook on CRE deals. Nontraded REITs with capital to deploy from their sizable war chests and investors recapitalizing existing property-oriented funds will continue to fund deals moving into the third quarter and beyond. Grocery anchored retail centers, industrial real estate and hospitality investment deals have been hot. PwC forecasts niche sectors will interest investors more in the days ahead, calling them “cornerstones” of real estate investment activity. Such niches include cold storage, data centers and life sciences.

According to a First American Financial Corporation analysis, capitalization (cap) rates will start to rise. This prediction is “based on the historical relationship between interest rates, rental income, prevailing occupancy rates, the amount of commercial mortgage debt in the economy, and recent property price trends.” Currently cap rates are still a near-record lows. Multifamily and industrial assets set first-quarter price growth records, increasing at a faster rate than any other overall CRE price growth. “However, a record amount of industrial square footage is currently under construction and expected to come to market later this year, which may slow price growth for industrial assets and put further upward pressure on the potential cap rate as the year progresses.”

Given when cap rates rise, values fall, we will likely see the peak in commercial real estate values very soon. The good news is as previously reported, Albuquerque’s tertiary market is cushioned causing our peaks and values to never be as high nor as low as the nation. We are always slower to experience what the global markets experience and our outcomes are typically less impactful.

Commercial real estate is still alive. How are you planning to position yourself to take advantage of our continued low interest rates? Yes, that’s correct, even with the Federal Reserve increasing interest rates, they are still low.

Shelly Branscom, CCIM is an NAI SunVista commercial real estate specialist who provides substantial long-term strategies and business planning services to her clients.  She prides herself on thinking outside the box, enabling her to contribute unique solutions and outcomes specific to each of her clients.  Learn more about Shelly and her listings.   

NAI SunVista is a full-service commercial real estate company serving New Mexico since 1996. The company is a dynamic commercial real estate firm offering best-in-class real estate services in brokerage, property management, asset management, business brokerage and development services.

Recession or recovery??  Let’s take a look at both the global and the local markets. 

Let me start by saying Albuquerque and New Mexico’s economic peaks and valleys are never as high nor as low as the world.  We are always slower to experience what the global markets experience and we our outcomes are typically less impactful. 

While several factors raise the possibility of an economic downturn, the overall outlook remains positive.  “Despite strengthening headwinds, economic growth remains steady,” writes CBRE chief economist Richard Barkahm.  “The US and Europe continue to enjoy strong momentum from the reopening of their economies, which are not yet complete and should precipitate further above-trend growth.”  Even as financial conditions tighten, the private sector will focus on retaining worker. 

Market strategist and founder of RiskRewardReturn.com, Sankar Sharma said the country is not at the recession tipping point yet, it could take 18 to 24 months for a recession to occur without an economic soft landing.  “The US Economy is highly unlikely to get into a recession because we still have low unemployment, banks are still looking robust and healthy.  There is still a labor shortage, Companies’ earnings and margins are looking healthy.  There is no distress in credit markets and liquidity conditions are normal.”

An economist and found of Next Generation Consulting Inc, Rebecca Ryan said right now there are just some structural issues involving too much money chasing too few goods – and while there might be a recession on paper, these issues will resolve themselves.  “We are talking ourselves into a recession,” Ryan said.  “Why do we want to borrow trouble?  We are trying to create a massive headache when we don’t need to.”  Business owners should still make investments where they need to, make sure works get raises they need and make sure they are investing for long-term growth. 

Experts say employers often have a hard time finding incentives that outweigh the benefits of remote work, including avoiding commutes.  A keynote at a recent local luncheon indicated employers will need to remain “flexible and pivot” when it comes to luring employees back to the office.  The most common compromise is the flexibility of in office meetings 1 – 2 days per week with the balance of the work week being performed remote.  Work place safety and cleanliness are some of the top requests of remote workers. 

What does that mean for the future of office?  While 52% of CBRE’s occupier survey respondents said they intend to reduce their office space in the next three years, another 39% of respondents indicated they plan to EXPAND their office space.  Adding amenities such as gaming, food/coffee and increasing the number of private offices for the immune compromised employees ranked among the top reasons for increased footprints.   What does the future of your office look like?

UPDATE: As of June 15, 2022, we recognize that the Federal Reserve has increased interest rates by 75 basis points.  In a press release the Fed stated they seek to achieve maximum employment and inflation at the rate of 2% over the longer run.   Although we are unsure how this will affect the overall economic health of our state, we are optimistic that the short-term outlook will remain positive and that we have a lot to continue to look forward to in 2022.

Shelly Branscom, CCIM is an NAI SunVista commercial real estate specialist who provides substantial long-term strategies and business planning services to her clients.  She prides herself on thinking outside the box, enabling her to contribute unique solutions and outcomes specific to each of her clients.  Learn more about Shelly and her listings.   

NAI SunVista is a full-service commercial real estate company serving New Mexico since 1996. The company is a dynamic commercial real estate firm offering best-in-class real estate services in brokerage, property management, asset management, business brokerage and development services.

As the nation begins to open up, children returned to the classroom, and international travel resumes, we can expect more of the same commercial real estate activity in 2022. According to NBC News, at the end of the first quarter of 2021, more than 70 countries are fully open to US travelers and tourists, while 16 are completely closed to Americans. The remaining countries fall somewhere in between. Most require a negative COVID-19 test, some sort of quarantine requirement and many have some sort of curfew in effect.

According to Moody’s Analytics REIS, transitions will affect all property types – including retail, hotel, office, industrial and multifamily. “Clarity is on the horizon.” Prices haven’t fallen enough to register real “transitions on any great scale and transaction volume has increased in the past few months.” In fact, an economist I heard speak indicated transaction volume is on the rise; especially in the tertiary markets where Cap Rates are higher than large cities.

Most companies, including Amazon, are targeting the second half of 2022 to return to the office. A CNBC report has indicated Google employees have to apply to work remotely for more than 14 days per year. On the contrary, Facebook and Twitter are allowing remote work indefinitely. Human Resources leaders across the nation are eyeing office reopening later in the year; likely 3rd Quarter. As more vaccinations reach the general public, leaders are re-assessing their position on exactly when employees across the nation can safely return. Here at home, many Albuquerque employers are fully open with employees coming and going from the office daily.

As growth in the life sciences sector hits historic levels, demand for lab space across the nation, and right here in New Mexico has exploded. “Insiders know that office absorption has been positive and rising for three quarters in a row,” says Marcus & Millichap’s researcher John Change. In fact, the Albuquerque office vacancy rate dropped to 13.85%, down 18 basis points from the previous quarter, and the lowest it’s been since 2009, reports Colliers International.

When assessing the space office users will need, the majority do not expect large reductions, rather many reported the need for a slight increase in space. Employers are still requiring employees to be present in the office at least part time. This requires space, and even if the share of desks becomes the norm, these desks are likely to be socially distanced. It is also probable that more collaborative space will be needed as office using employers lean toward brings in teams on the same days in the hopes of sparking creativity and innovation that my not be replicated on a virtual platform. Moody’s Analytics predicts the professional and business service sectors will grow by more than 20% over the next decade, a forecast that will bolster office demand.

Moody Analytic’s forecast is supported by the reports of significant gains of tenant office tours across the nation, both in person and virtually. While we saw some growth in demand the last half of 2020, the exponential increase in the first two months of 2021, combined with the announcement from the Biden Administration that all Americans are eligible for the vaccine, is providing confidence that a meaningful recovery is on the horizon. At some point, all things will go back to normal and it’s going to look more like the old normal than most people think. 

Shelly Branscom, CCIM is an NAI SunVista commercial real estate specialist who provides substantial long-term strategies and business planning services to her clients.  She prides herself on thinking outside the box, enabling her to contribute unique solutions and outcomes specific to each of her clients.  Learn more about Shelly and her listings.   

NAI SunVista is a full-service commercial real estate company serving New Mexico since 1996. The company is a dynamic commercial real estate firm offering best-in-class real estate services in brokerage, property management, asset management, business brokerage and development services.