Archives for October 2020

Retail sales increased 1.9% in September, surpassing economists’ initial expectations.

Figures released by the Commerce Department last week show that the US retail market is continuing down the path of recovery. US retail sales increased 1.9% or $549.26 billion in September—surpassing economists’ expectations of a .7% increase for the month. Year-over-year, retail sales have increased 5.9%.

The question is, can this momentum continue?

Healthy payroll growth, back-to-school spending and disaster-relief unemployment aid have fueled the recent market gains. “Today’s data indicate that consumers are still driving the recovery forward — but there is growing doubt that the pace of activity can be sustained as income growth moderates and savings are being drawn down,” James Watson, senior U.S. economist at Oxford Economics, said in a report by S&P Market Intelligence.

But with growing discord over a government stimulus package and the November election around the bend, it is possible that consumer spending could retreat in the fourth quarter. In addition, the most recent unemployment report shows an increase in jobless claims to 898,000, up from 845,000. “If initial unemployment claims continue to rise, and if layoffs begin to focus on higher wage earners as corporations embark on cost-cutting strategies, consumer confidence and consumer spending could level off,” said Quincy Krosby, chief market strategist at Prudential Financial, said in a S&P Market Intelligence interview.

The coming weeks will be a true test for the market. When looking at indicators like mortgage applications and credit and debit card spending, Watson added that the market might struggle to find direction.

However, a report by Marcus & Millichap suggests that holiday sales could be a bright spot for the market. In addition, money typically allocated to travel and entertainment could be funneled to retail.

It is also worth noting where consumers spent their retail dollars in September—in many cases they suggest a genuine return to pre-pandemic shopping patterns.

Clothing and clothing accessory stores increased 11% in September, leading the market in month-over-month gains. Back-to-school sales fueled activity in this market segment as well as adults who are adopting a more normalized work schedule, some in the office. Department stores in particular were a beneficiary of the increase in spending, with sales up 9.7% for September.

A handful of other retail segments also posted notable gains for the month, including sporting goods, hobby, musical instrument and book retailers, which saw a 5.7% jump in sales; grocery stores, which saw a 9.6% increase in sales; and motor vehicle parts and dealers, which saw a 3.6% increase in demand.

Year-over-year figures illustrated the sector’s resilience as well. Although it had nominal monthly gains, building materials and home improvement stores had a 19.1% year-over-year increase in sales. Food and beverage retailers increased 10.5%, and nonstore retailers led the market with a 23.8% increase in sales year-over-year.

Source: “Can the Retail Market Hold Onto the Gains It Made in September?“

Whoever wins the presidential election next month, the outcome won’t affect the longterm returns on commercial real estate investment.
That’s according to a new Cushman & Wakefield report, which dives back to the late 1970s to show that returns on investment for institutional investors in commercial real estate tend to do well under both Republican and Democratic administrations.
The report worked off data from the National Council of Real Estate Investment Fiduciaries Property Index (NCREIF NPI), which institutional investors in the U.S. use to gauge the performance of commercial estate. Think of it as a guide for deciding what will be a good investment and what won’t. It turns out that the NPI does pretty well whoever’s in the White House.
“Property has performed well under both parties,” the Cushman & Wakefield report, which in-house economists Kenneth McCarthy and Kevin Thorpe authored, said. “Since 1979, NCREIF property index returns have averaged better than 8.5 percent annually under various Democratic and Republican administrations.”
In fact, if you look at the chart below, you’ll see that the downturns in commercial real estate investment performance have come during recessions, including the one at the start of the 1990s (under Republican George H.W. Bush) and during the financial crisis of 2008-2009 (under Republican George W. Bush and Democrat Barack Obama).

To be clear, it could matter very much who’s president when it comes to how and whether to invest in commercial real estate at all, whatever the returns. Former Vice President Joe Biden has said he would tweak existing 1031 exchange rules, for instance, and he differs with President Donald Trump on the efficacy of the opportunity zones program that the 2017 federal tax overhaul created. Numerous investors have seized on the OZ program to park money in various developments to defer certain taxes.
As far as return on investment, though, the election’s outcome doesn’t matter as much as other factors—though who’s president can certainly play a role in how these factors unfold.
“Rather than elections,” the Cushman & Wakefield report said, “the real estate cycle, the economy, interest rates, COVID-19, geopolitical events, and long-term growth drivers (like demographics and technological change) are the areas to focus on in determining leasing fundamentals and property values.”
Source: “Whoever Wins the Presidential Election, It Won’t Upend Commercial Real Estate Returns“

NAR’s latest outlook report shows that the commercial market is starting to turn around, even if only modestly. A strong increase in occupancy in industrial is offsetting loss of occupancy in office and retail. Also, take a look at two new pieces on apartment rent trends and how financial volatility impacts commercial sales and prices. Read the full report.
Source: “Commercial Market Insights“