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Sunshine Corner is SRR Consulting’s bi-monthly newsletter with updates, news, and Sara's views on the US economy and commercial real estate.
Issue 2024:4
In this edition of Sara’s Sunshine Corner:
☀️ What’s new? Updates on GDP, jobs, and a note on CRE pricing and core fund values.
☀️ What’s next? SRR Real Estate Quarterly is available behind this newsletter’s paywall with everything you need to know about the Expanded NPI and Q1 2024 property returns.
☀️ So What? I love writing and I love research, but I can’t do it for free. Please subscribe to support my work.
What’s New?
It has been a busy couple of weeks since the last issue. We have new data on GDP, employment, inflation, and a Fed decision. For real estate data watchers, we also have Q1 2024 core fund benchmark returns and the Expanded NPI!
GDP Slows
The Q1 2024 annualized real GDP growth estimate was 1.59%, down from 3.40% in the prior quarter and 2.24% in the same quarter last year. Slower growth is to be expected, but let’s take a look under the hood.
Contributions to GDP growth by component offer a look at what is pushing growth up – personal consumption – dragging it down – trade and inventories. Inventory reduction and slower consumer spending are common to Q1 numbers, so I am less concerned about these factors than the trend in investment. Both business and residential investment have been weak for a few quarters and residential investment will likely remain under pressure from high mortgage rates and prices. A rate cut could help.
Labor Market Hangs On
With 175,000 new jobs in April, payroll employment has slowed, yet remains healthy enough to keep unemployment low. April 2024 job gains fell well below the monthly pace of 233,500 over the past year.
Examining payroll job growth by key real estate segment, healthcare is leading the pack by a wide margin with 4.8% growth year-over-year. Industrial and logistics services are a distant second with 1.8% growth, followed by education (1.7%) and retail/leisure/hospitality (1.6%).
The good news is that positive employment growth is enough to keep real estate demand growing. Plus, the combination of slower employment growth and easing inflation increases the likelihood of a rate cut this summer.
CRE Values Following Prices Down
The Green Street CPPI shows continued flattening in commercial prices. This index measures market pricing for all commercial property under contract, whether it trades or not, and has been flat for seven months. As of April 2024, Green Street’s CPPI is down 7.2% year-over-year for a 21.4% drop from its peak in 2022.
Core real estate fund values have been playing catch-up to market pricing, but as of Q1 2024, the NFI-ODCE benchmark has depreciated 23% due to the high interest rate environment.
Although the composition of these indices differ, the 20%+ correction in each and flattening in market prices imply that the real estate value correction may be reaching an end. Of course, a rate cut would help.
What’s Next?
Check out the inaugural edition of SRR Real Estate Quarterly. Highlights:
☀️ An overview of the new, expanded NCREIF Property Index (NPI)
☀️ SRR Consulting’s framework and analysis of key property segments and major property types
☀️ Metro-level total return analysis by property type
So What?
If you’ve made it this far, thank you for subscribing!
I appreciate the support and look forward to your questions and feedback to keep this newsletter insightful and actionable for your business.
Email sara@srrconsulting.org anytime 🌞
Thanks for reading!
Fun Facts: Sunshine marks the start and end of each day and illuminates the moon to mark the start and end of each month. New data covering the economic and demographic drivers of real estate performance are released at differing monthly and quarterly cadences such that an important data release occurs at least once a week. It is chaos. To build this newsletter's calendar, I chose to follow sunshine and release this newsletter twice per month, at the start (new moon) and end (full moon) of a lunar month. Problem solved. 🌞