Industrial Real Estate: What a Difference a Year Makes

GDP Up 3.3% in the Fourth Quarter '23 link

• America's real GDP saw a significant increase of 3.3% in the fourth quarter of 2023. This growth, however, marks a decrease from the previous quarter's annualized increase.

Economic Watch: Fed Holds Rates Steady, Signals Caution on Rate Cuts link

• The Federal Reserve maintains the federal funds rate at 5.25% to 5.5% and continues reducing its balance sheet by $95 billion monthly.

• Despite removing language about further tightening, the Fed requires more confidence in inflation moving sustainably towards 2% before considering rate cuts.

• Rising real interest rates present a challenge, but the U.S. economy is expected to stay resilient, with a growth forecast of 1.6% for the year.

• Real estate investment activity is anticipated to increase in the latter half of the year as the Fed begins to cut rates.

• Leasing activity is expected to stay relatively resilient, though tempered by economic and business uncertainties.

Powell Says March Cut Is Unlikely link

• The Federal Reserve's decision to keep the benchmark federal funds rate steady was expected, but Jerome Powell's explicit dismissal of a March rate cut was a surprise. This decision reflects the Fed's cautious approach despite core inflation rates being below the 2% target.

• The Fed's stance indicates a focus on achieving a 'soft landing' for the economy, balancing between controlling inflation and supporting growth. The current economic conditions are seen as positive, but the Fed remains vigilant, suggesting a careful and measured approach to future rate adjustments.

Home Equity Down Slightly Across U.S. During Fourth Quarter But Remains Strong link

• In Q4 2023, 46.1% of U.S. mortgaged homes were equity-rich, a decrease from 47.4% in Q3 2023 and 48% in Q4 2022.

• The percentage of seriously underwater mortgages in the U.S. rose marginally from 2.5% to 2.6% in the last months of 2023.

• The median home price growth in 2023 was just 2%, the weakest since 2012, influenced by mixed factors like rising mortgage rates and tight home supply.

• Equity-rich mortgages declined in 41 out of 50 U.S. states, with significant drops in the Midwest and West regions.

• The highest levels of equity-rich homeowners were in the Northeast and West, with Vermont leading at 82.8%.

Industrial Real Estate: What a Difference a Year Makes link

• Industrial availability rates have significantly shifted in the past year. A year ago, they were below the long-term trend in almost all U.S. markets, with Denver as the only exception. Now, the situation has completely reversed, indicating a dynamic shift in the industrial real estate sector.

• The decline in occupier demand, especially in interest-rate sensitive sectors like for-sale housing, has impacted availability rates. For example, in Riverside, CA, the rate soared from 2.3% to 7.3% between Q3 2022 and Q3 2023. This change reflects broader market adjustments, including price resistance and shifts to more economically viable locations like Phoenix.

• A construction boom, initially fueled by pandemic-era demand and pre-interest rate hike financing, led to increased availability. However, this boom has subsided as credit conditions tightened in 2023. If the economy remains resilient and space absorption meets expectations, availability rates might gradually return to equilibrium, suggesting a potential stabilization in the future.

Japanese bank tanks over 20% after flagging losses tied to U.S. commercial property link

• Aozora Bank's shares plummeted to their lowest in eight months, dropping by 21.5% to 2,557 yen. This drastic fall was triggered by the bank's warning of a net loss of 28 billion yen for the fiscal year, a stark contrast to its previously forecasted net profit of 24 billion yen.

• The bank's financial woes are attributed to its exposure to U.S. office loans, compounded by higher U.S. interest rates and the shift to remote work due to COVID-19. These factors have created a challenging environment for the U.S. office market, characterized by low liquidity and adverse conditions.

• Aozora Bank's situation reflects broader concerns in the banking sector, as evidenced by New York Community Bancorp's recent surprise net loss of $252 million. This loss, partly due to addressing weaknesses in the office sector, highlights the ongoing challenges faced by U.S. regional banks in the current economic climate.