The Weekly Briefing - February 16th, 2021

Growth in Consumer Prices Remains Muted

The latest data from the Bureau of Labor Statistics indicates inflation has remained in check despite Congress pumping $3.5 trillion of coronavirus-related fiscal support into the economy over the past year. Growth in the Consumer Price Index (CPI) slowed from 2.5% YOY in early 2020 to 1.4% YOY as of January, while core inflation has also decelerated by approximately one percentage point. A slack labor market is likely correlated to the lower pace of spending currently seen in the economy that has dampened demand-side pressures on pricing. Personal consumption dropped 3.9% during 2020, while payrolls are down 9.9 million jobs from the pre-pandemic peak. While the unemployment rate has improved by more than half since April 2020, the headline U-3 number is somewhat misleading given that 4.3 million people have left the labor force and not counted as jobless. The stable housing sector has also played a role in muting inflationary pressures despite rising single-family home prices in many major markets. The shelter component, which accounts for a third of the CPI, rose 1.6% last year, almost exactly half the average annual increase over the preceding three-year period. Looking ahead, the Federal Reserve has several levers it could pull to rein in consumer spending if inflationary pressures do ramp up. But there has not been a need for draconian measures since the early 1980s when inflation reached double digits. Consumer Price Index & Monthly Change Market Spotlight: Tampa Outperforming on and off the Field

All eyes are on Tampa after hosting and winning the Super Bowl last week, but the Gulf Coast metro has also demonstrated strength as a commercial real estate market over the past year. Multifamily rent growth currently stands at 5.5% YOY, third best among the 30 largest markets nationwide as rents have climbed steadily since recording a small dip in April 2020. Asking rents now average $1,300 a unit, an all-time high, while the vacancy rate has ticked downward since the onset of the pandemic to 5.8%, according to CoStar. In the office sector, rents in Tampa have contracted slightly by 0.1% YOY, but the figure compares favorably to the U.S. decline of 1.3% YOY. The availability rate has crept up 150 basis points YOY to 11.5% primarily due to weakness in Class A properties. But the availability rate for Class B office in Tampa has nearly held steady over the course of the pandemic. Tampa’s strength in the commercial real estate sector owes in part to an influx of new residents and an above-trend economic recovery. Redfin estimates the metro attracted 47,000 new arrivals last year, fourth most of any metro nationwide. And metro payrolls finished 2021 down only 3.6% YOY, compared to the U.S. decrease of 6.1% YOY. Tampa Outperforming on and off the Field Fastest Expanding Firms and Jobs Signal Shifts in the Economy and Commercial Real Estate

The lists of fastest growing companies and job titles during 4Q20 speak to pandemic-induced shifts in consumption and work habits that have implications for commercial real estate. Amazon, for example, has benefited from a surge in online purchases over the past year, and e-commerce spending has boosted the warehouse and logistics sector at the expense of brick-and-mortar retail performance. The list of rapidly expanding firms also illustrates changes in what consumers are purchasing and highlights divergence in the retail industry as not all retailers have underperformed. Lululemon, which ranks number one in headcount growth, has benefited from social distancing guidelines that have limited informal gatherings and pushed athleisure sales higher. Best Buy also added workers at a rapid pace as consumers spent to upgrade home offices and home entertainment options. Meanwhile, rapid growth at Amazon Web Services and a separate jump in the number of software engineers relate in part to higher demand for cloud computing services. As videoconferencing and streaming consumption accelerated during the pandemic, so has the need for robust networks of remote servers housed at data centers. Data centers, which require sophisticated cooling systems and redundant building systems to avoid service disruptions, have seen strong investor interest in recent months.

Disclosures and Disclaimers

This is a general analysis of the real estate market prepared by Bridge Investment Group LLC (“Bridge”) and is not related to any specific products or services of Bridge or any affiliate. Sources for statistics and other factual data included herein are maintained by Bridge Research. Such data has not been verified by Bridge and we can give no assurance that it is accurate or complete. Statements contained herein that are nonfactual constitute opinions of Bridge, which are subject to change. Financial projections contained herein are estimates only and are based on assumptions, including assumptions regarding future rent growth, the availability and cost of financing, changes in market capitalization rates, and various micro- and macro-economic trends. No assurance can be given that either the projections or the assumptions will prove to be accurate. Investment in real estate involves substantial risk of loss.

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