Though the past three years have been fraught with numerous challenges, Stream continues to deliver for our clients, capturing opportunities in real time regardless of market conditions. Our Central State of the Market event, which took place in Austin, allowed us to provide our clients and teams with ample networking opportunities and an honest dialogue surrounding today’s economy.
Some of the region’s leading economic and CRE experts provided us with the insight needed to move forward confidently in 2023. While rising interest rates, inflation, a looming recession, and recent bank failures have done little to ease concerns since the year’s start, our panelists viewed today’s market as something that would correct itself, with abundant opportunities across the central region and country, amidst some difficulties.
Inflation & Interest Rates
According to Dr. M. Ray Perryman, one the nation’s leading economists, the market we are experiencing isn’t nearly what we experienced in the 1980s. Excess stimulus money and supply chain challenges created a scenario with, “too much money chasing too few goods,” causing prices to increase drastically. However, Dr. Perryman and fellow panelists agreed that this would inevitably work itself out and is already on the mend, with inflation measured at a 5% annual average in March and wholesale inflation (the leading indicator) at 2.7%. To put these figures in perspective, we were at 9% last summer. As such, interest rates may only rise by an additional .25%-.50%, if at all.
Silicon Valley Bank (SVB) disproportionately invested in tech, start-ups, and a long position in treasuries (impacted by rising rates). Similarly, Signature took a strong position in crypto. Neither of these bank failures were systematic, like what we experienced in 2008 when the entire mortgage industry collapsed or in 1980 with tax law changes that encouraged syndications. The recent pandemic, and numerous headlines about an economic downturn, have created heightened alert. Combine that heightened state with misinformation and immediate fund access through technology; it is the perfect bank run catalyst.
CRE Loan Maturations
Indeed, much of the CRE debt taken on over the past decade is coming due soon, with approximately one trillion dollars needing to be refinanced by 2024. That’s where the pressure point comes in, affecting the CRE industry. It’s also why many regional banks (who hold portfolios that are 70% real estate based) have tightened credit quite a bit. With these maturations coming due just before the presidential election, there will likely be some more flexibility in the types of loan restructurings that are allowed, and a bit more flexibility within the financial system, providing owners and investors with additional options.
Many like to credit the pandemic for the declining workforce, although it comes down to a lower birth rate within the U.S. To attract and retain top talent, employers must provide higher salaries, improved benefits, workplace flexibility, and development opportunities. While technology may replace specific jobs, in the long term, most industries will still require a human workforce. It is also important to note that individuality and various rights (voter, reproductive, etc.) are top of mind for many of the best and brightest minds, making states with less restrictive laws appealing to companies and employees alike.
While the U.S. experienced a significant downturn after the pandemic and took 27 months to regain the lost jobs, it now has three million more jobs than the month before. It only took 19 months in Texas, with more than 900,000 jobs back. Additionally, the services and the life sciences sectors are seeing immense growth, with new construction and updated assets continuing to outperform in markets across the country.
As the market evolves, we remain equipped and committed to uncovering opportunity amidst uncertainty, driving value for our clients and the communities they serve at every turn.
Special thanks to our sponsors for helping to make this event a success:
Heritage Title Company of Austin | Knight Commercial | ECS of Texas | PJS of Texas | Morrison & Head | Clean Scapes | CoStar Group | Kimley-Horn | Powers Brown Architecture | RealtyAds | Bisnow | Texas Fifth Wall Roofing | Priebe Security Services, Inc.