Location Strategy Chartbook 091424

Guessing how the easing cycle will pan out is challenging. The Fed’s trajectory has repeatedly blindsided traders since the pandemic. Anticipating the inflation surge would be brief, investors underestimated how high rates would go. Then they prematurely piled into bets the Fed was poised to cut, leaving them wrong-footed when it didn’t.

Mixed news from the Labor Department showed the August unemployment rate at 4.2%, down from 4.3% in July and remaining low by historical standards. Construction led August job gains from the prior month at 34,000, followed by healthcare at 31,000 and social assistance at 13,000.

Industries posting notable declines included manufacturing, down 24,000 for the month, which the government said reflected a particular decline for companies that produce durable goods like computers, appliances and business equipment. Manufacturing has otherwise been a big generator of new construction projects in the past two years as the U.S. has moved to boost domestic production of computer chips, electric vehicles and EV components, though demand for those products has been slowing in recent months.

“Construction job growth was the strongest in five months in August,” Ken Simonson, chief economist for the Associated General Contractors of America trade group, said in a statement. “But the record-low unemployment rate for jobseekers with construction experience shows how much difficulty contractors face in finding qualified workers.”

More than one-in-six of the jobs created last month came from the government. Looking just at the private sector, payroll increases have risen by an average of 96,000 over the past three months.

That’s “weak even by the anemic standards of the 2010s expansion,” Michael Feroli, chief US economist at JPMorgan Chase, wrote in his synopsis Friday. Indeed, private-sector job gains trended at almost double that pace in 2010-15. Overall, the report added to a “sense of waning vigor in labor market activity,” Feroli said.

Markets are skittish. Tiny shifts in the economy are magnified into fear of recession or big relief rallies as sentiment swings wildly.

Accelerating demand for mid-priced apartments has already surpassed last year

Sun Belt locations represent seven of top 15 markets

Demand for those units jumped 86% in this year's first quarter from the same time a year earlier and 126% from 2023's second quarter.

This surge in demand is reflected in absorption, a measure of the net change in occupancy. The 75,800 units absorbed in three-star-rated multifamily properties in the first half of 2024 have already exceeded the full-year total absorption of 60,000 units in 2023. While more expensive 4- and 5-star-rated properties still accounted for the highest levels of absolute demand, with 121,000 units absorbed in the second quarter, that’s an increase of only 40% from a year earlier.

When multifamily demand cratered in 2022, three-star-rated absorption finished the year in the red by 20,000 units. This was a stark turnaround from the 172,000 units of absorption recorded for those types of units in 2021.

Apartment renter retention is at a 16 month high

National active listings are on the rise +36% between August 2023 and August 2024. However, we’re still well below pre-pandemic levels -26% below August 2019

Biggest inventory jump: Florida

Office vacancies hit a peak of 20% vacancy as more tenants are leaving than moving in

The percentage of loans that are either 90-plus days behind on payments or have been earmarked for the lender to collect less than the full principal and interest due. Taken together, this noncurrent loan rate now stands at 4.5%, the highest since the fourth quarter of 2013.

According to the FDIC, the nation's largest banks, those with assets over $250 billion, are increasingly feeling the strain. Regional banks are also under pressure. Weak demand for office space and falling property values are making it harder for these banks to refinance loans and maintain credit quality. About 40% of all commercial real estate loans are held by banks.