Editors’ Weekly News Roundup, April 24th – 28th
A pair of forecasts calling for potentially stormy conditions bookended this past week’s five most read Connect CRE stories. Topping the ranks was a story summarizing a Wall Street Journal report warning that commercial property owners, especially in the office sector, face a combination of a cyclical market downturn and secular changes in the way people work, live and shop.
Headlined WSJ: Commercial Landlords’ Problems Are Deeper Than in Past Down Cycles, the story made the point that it’s not yet clear how sharp the downturn for commercial real estate will be. However, unlike in previous cycles, some sectors may not rebound to new highs once the downturn runs its course.
Speaking of new highs, the week’s second most read story was about a project that originally was supposed to represent just that. Now, though, its aspirations have been curbed. Wilson Capital’s Wilson Tower was designed to be the tallest building in all of Texas, let alone Austin.
But then a challenging economy forced the developer to scale back its ambition. Plans for Austin’s 80-Story Tower Cut in Half resonated with Connect CRE readers both in Texas and nationally. Wilson Tower is still planned to break ground later this year, but with fewer apartments and many fewer stories than Wilson Capital envisioned at first.
The past week’s third-ranked story was more upbeat, providing positive news for a sector that some reports would have you believe is about to go the way of dinosaurs, horse-driven buggies and rental videotapes. VTS’ latest analysis of leasing activity found that post-winter recovery was especially strong this year; we reported on the company’s findings in Office Space Demand Shakes Off the Winter Doldrums.
That being the case, a follow-up story on our Seattle page reaffirmed the truism that real estate is a local business. New demand for office space rose more than 31% in March across the seven leading markets covered by VTS. However, Seattle managed only a single-digit monthly increase compared to February, and it was tied with San Francisco—another tech-heavy market that has suffered large-scale layoffs—for the lowest VTS Office Demand Index.
If tech-related office leasing has suffered a dramatic reversal of fortune compared to pre-pandemic levels, then the same can’t be said about investor demand for affordable housing. One of the largest multifamily acquisitions of recent years, aside from entity-level deals, was the basis for the past week’s fourth most read story.
Partnership Acquires 90-Property Affordable Portfolio for $1.2B told the story of the Essential Housing Impact Partnership, a collaboration among The Community Development Trust (CDT), The Michaels Organization and Goldman Sachs Urban Investment Group. For CDT in particular, the deal was the largest in the company’s 25-year history.
Coming full circle with another cloudy forecast, Fannie Mae Expects Stronger Q1 Growth But Still Forecasts Recession rounds out the week’s top five. Among other things, Fannie Mae’s Economic and Strategic Research (ESR) Group believes the additional, incremental tightening in credit conditions owing to the financial fallout will contribute to a modest recession beginning in the second half of this year. As the headline suggests, the prospect of a recession is a theme that the ESR Group has been sounding for some time.
Fannie Mae’s projection of stronger first-quarter GDP growth came out nearly a week before the actual numbers from the Bureau of Economic Analysis—which went in the opposite direction. Tepid Q1 growth of 1.1% came in below the consensus estimates from analysts, a reading that’s nonetheless unlikely to deter the Federal Reserve from once again increasing the federal funds rate at its May meeting.
If you’ve followed the news recently in general business publications and major newspapers such as The New York Times, you’ve likely seen dire warnings about the prospects for “commercial real estate” time and time again. That kind of generalization about an industry with many sectors and subsectors is something to avoid, Marcus & Millichap advises in a new report appearing in Weekender. You can find that report, which puts context around the many doom-and-gloom headlines, here.