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Fed Follows Through With Expected Rate Hike – Here’s How it Will Impact CRE (Bisnow)
- As expected, the Fed raised short-term interests at their meeting yesterday marking the first post-election rate hike. The short-term impact on CRE is expected to be minimal as investors have expected this rate increase for some time so have already priced in this increase. The longer-term impact is still unclear as “the market is anticipating basically between two and four more next year in terms of what the Fed will do,” according to Jon Southard, the chief CRE economist at the University of Chicago.
- The 10-year treasury rate, which can be more impactful on commercial real estate than short-term interest rates, has jumped nearly 15 basis points since Wednesday morning up to approximately 2.59% as of Thursday afternoon.
REITS Sag in November Due to Post-Election Rate Changes (Trepp)
- REIT returns have generally slumped as interest rates have risen post-election. According to NAREIT, the total returns of the FTSE/NAREIT All REIT Index dropped 2.0% in November, while the S&P 500 gained 3.7%.
- One silver lining, however, was the divergence between equity and mortgage REITS as mortgage REITS have now seen gains in three of the last four months. According to Brad Case, NAREIT’s Senior Vice President of Research and Industry Information, market signals are “all very bullish” and “the fundamentals throughout the REIT space seem to remain solid.”
Office Tenants’ Taste for Robust Concessions Is Now Baked In (Globe St)
- Despite a decrease in the vacancy rate and rising rents since the Great Recession, concessions have been growing at a larger pace than rents. According to Sandy Paul, Newmark Grubb Knight Frank’s managing director of National Market Research, average tenant improvement allowances and free rent in Class A space in major cities have risen 66% and 73% respectively since 2008. Average starting rents have also risen, but at a much less aggressive pace of 21% over the same period.
- According to Paul, the primary reasons for the growth in concessions are less net new demand for space than in the prior cycle and the expectations of tenants as they have grown used to these concessions as part of their leasing package.
Kroger Poised to Buy Walgreens/Rite Aid Stores (Cincinnati Business Courier)
- Kroger appears to be closing in on a deal that would have the grocery chain purchasing a large portion of the 1,000 Walgreen and Rite Aid stores that were previously thought to be closing. The discount pharmacy chain Fred’s is thought to be purchasing a “substantial” number of stores as well.
- The stores likely allocated to Kroger are thought to be in the Northeast, an area where Kroger does not currently have a presence. Details are to follow as Kroger did not comment on the story since the deal has not yet closed.