Thoughts for the Fourth

It’s hard to believe we are past the halfway point of 2021!  We thought we would share a few macro and micro economic observations with our clients, friends, and associates.

Over the past year, the COVID-19 pandemic has served to accelerate the use of technology, which has led to the growth of online shopping as well as the ability to work remotely and enjoy activities, such as remote fitness classes from the comforts of our homes.  While the pandemic may have changed some aspects of real estate markets, it clearly didn’t decimate it. Rather, it created increased opportunities for property investment, development, and efficiency in property operations.

The US enjoyed a robust 6.4 percent seasonally adjusted GDP growth in Q1 2021 – thanks to increased COVID-19 vaccinations that allowed broader consumer economic re-engagement, government pandemic relief stimulus to qualified households, and an extended government-funded unemployment. The S&P 500 and Dow Jones Industrial Average are at record highs and first-time claims for unemployment benefits have tumbled since the beginning of April to the lowest level since March 2020.

According to most forecasts, real GDP growth is expected to surge above 8 percent in the second quarter and above 6 percent in the third quarter. These are numbers that haven’t been seen in decades. Furthermore, both residential and non-residential fixed investments are anticipated to increase at an even faster pace.

The Bureau of Labor Statistics states that the U.S. labor market has rebounded nationally from a seasonally adjusted high unemployment rate of 13.0 percent in May 2020 to 5.5 percent in May 2021.  Delaware’s seasonally adjusted rate in May 2021 was 5.9 percent down considerably from the 13.3 percent reported in May 2020.

Consumers have been on quite a wild ride over the past 16 months. Recent discretionary spending on general merchandise continues to be healthier than expected.  The Commerce Department reports that in May 2021 retail goods spending was 20 percent higher than February 2020.  This pent-up consumer “revenge spending” includes dining out, recreation, and airline tickets.

Real estate pricing is tied to the economy that feeds into market fundamentals such as tenant demand which in turn fuels occupancy, rental rates, and operating costs.  Pricing of most commercial real estate investments in 2020 held steady thanks to the lack of distressed sales, with real estate being a long-term hold asset and the availability of cheap debt financing.

Nationally, commercial real estate fundamentals and investment activity fared pretty well during the pandemic.  Unfortunately, some assets that were suffering from large vacancies, functional obsolescence, and upside-down economics will be forced to go through redevelopment program or face demolition.  However, the local commercial real estate market remains active with a steady transaction pipeline due to investors and developers having long-term faith in the market coupled with the currently complementary low interest rate environment.

Apex Realty Advisory wishes you and your family a wonderful holiday weekend.


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