The Weekly Briefing - March 22nd, 2021

The Weekly Briefing – March 22nd, 2021

In This Week’s Brief:

  • Consumer Spending Kicking the Recovery into the Next Gear as Sentiment Improves
  • Medical Office Sector Once Again Demonstrating Durability in a Downturn
  • Multifamily Developers Pulling Back, While Industrial & Office Construction Activity Holds Steady

Consumer Spending Kicking the Recovery into the Next Gear as Sentiment Improves

Real-time data shows consumer spending accelerated 5.1% in January compared to the month prior as the second round of stimulus checks hit personal bank accounts. The increase in consumer activity provided a much-needed boost to the recovery, which was showing signs of stalling in late 2020.

Average daily spending picked up in every major category during January except health and social assistance. Sectors more reliant on discretionary spending, such as arts and entertainment as well as accommodations and food services, recorded some of the largest gains with double-digit percentage increases compared to the prior month.

Final consumer spending data is not yet available for February, but early indications from Opportunity Insights suggest households continued to ramp up purchase activity last month.

March could turn out to be another strong month given that consumers are growing more optimistic heading into spring and have added spending power at their disposal due to the third round of stimulus checks currently being distributed. The University of Michigan’s Index of Consumer Sentiment has climbed to the highest level in a year, and the Consumer Confidence Index has improved over the past two months.

Percentage Change in Daily Consumer Spending from Dec. 2020 to Jan. 2021


Medical Office Sector Once Again Demonstrating Durability in a Downturn

Medical office buildings (MOBs) have lived up to their reputation over the past year as a relatively resilient asset class despite healthcare company finances suffering from restrictions and delays of elective medical procedures. After dipping in spring 2020, healthcare employment has recovered to approximately -3.5% below pre-pandemic totals compared to a -6.2% decline in nonfarm payrolls.

MOB base rents for properties with 10,000+ SF of space have risen 3.5% YOY, surpassing general office rent performance as also occurred during the GFC. MOB vacancies have ticked up over the past year to 9.2% because of a -12.9% YOY slowdown in leasing activity. But the MOB vacancy rate remains approximately 140 basis points below the vacancy rate for all office space.

An analysis of CoStar data indicates that MOB market cap rates and median price PSF have barely budged during the pandemic and stand at 8.0% and $213 PSF, respectively. MOBs accounted for roughly one of every ten office trades prior to the pandemic, averaging $12.8 billion in annual transaction volume.

Medical Office & All Office Vacancy Rate & Annual Rent Growth (Buildings with 10,000+ SF)


Multifamily Developers Pulling Back, While Industrial & Office Construction Activity Holds Steady

One year after the start of pandemic-related lockdowns, multifamily pipeline activity has declined significantly and is falling below Bridge’s internal projections of demand. We expect this may lead to further supply constraints and place upward pressure on prices, especially given that rent growth often ‘pops’ to above-historical averages during the early phase of recovery after a recession.

Meanwhile, the pace of development of both industrial and office space continues in line with pre-pandemic trajectories. CoStar estimates there is 325.4 million SF of new inventory underway in the industrial sector, which has seen fundamentals hold steady over the past year as retail spending migrated online and boosted warehouse and logistics demand. Developers are working on 158.7 million SF of new office supply, which is marginally higher than end-2019 totals.

In contrast, multifamily, industrial, and office development activity dropped by more than half during the GFC. The amount of construction underway in each sector peaked in the second half of 2007 and took two-and-a-half to three years before bottoming out.

Square Feet & Units Under Construction by Property Type

 

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.
This analysis contains various forward-looking statements that are not historical in nature. You are cautioned not to place undue reliance on any of these forward-looking statements, which reflect our views as of the date of this presentation. Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Although we believe that the expectations reflected in such forward-looking statements are based on reasonable assumptions, our actual results and performance could differ materially from those set forth in the forward-looking statements and we cannot guarantee future results or the successful implementation of the strategies discussed in this presentation. We are under no duty to update any of the forward-looking statements after the date of this presentation to conform these statements to actual results. Certain information contained herein has been obtained from published sources, agencies of the U.S. government and from third-parties, including without limitation, market forecasts, market research, publicly available information and industry publications. Although such information is believed to be reliable for the purposes used herein, Bridge does not assume any responsibility for the accuracy or completeness of such information. Similarly, forecasts or market research, while believed to be reliable, have not been independently verified and Bridge does not make any representation as to the accuracy or completeness of such information. All information is provided on an “as is” basis only. By using this information, the reader agrees that Bridge shall not have any liability for the accuracy of the information contained herein, for delays or omissions therein, or for any results based on your use of the information which are not consistent with your objectives. Without limiting the foregoing disclaimers, the information provided herein is not guaranteed to be accurate or complete, nor does Bridge take responsibility for it. The information contained herein has not been audited and Bridge does not guarantee its suitability for any purpose. All information is subject to change and/or withdrawal at any time without notice. Certain information included herein may refer to published indices. Indices that purport to present performance of certain markets or the performance of certain asset classes or asset managers may actually present performance that materially differs from the overall performance of such markets, asset classes or asset managers.
Past performance is not a reliable indicator of future results and should not be the sole factor of consideration when selecting a product or strategy. Any research in this document has been procured and may have been acted on by Bridge for its own purpose. The results of such research are being made available only incidentally. The views expressed do not constitute investment or any other advice and are subject to change. They do not necessarily reflect the views of Bridge or any of its affiliates and no assurances are made as to their accuracy.
This document is for information purposes only and does not constitute an offer or invitation to anyone to invest in any Bridge funds and has not been prepared in connection with any such offer.
Copyright 2021, Bridge Investment Group LLC. “Bridge Investment Group” and certain logos contained herein are trademarks owned by Bridge.