All Forum Posts by: Sanjeev Advani

In 2024, back-to-school and back-to-college spending has dropped as consumers adopt a more cautious approach following the pandemic surge. The National Retail Federation (NRF) reports declines of 6.5% in back-to-school spending and 7.9% for back-to-college, with shoppers focusing on frugal choices amid rising inflation concerns and an upcoming presidential election.

During the pandemic, families spent more on school supplies and remote learning gear, but priorities have shifted to travel, dining, and entertainment. While overall retail spending is projected to rise 2.5% to 3.5%, consumers are being more strategic with their purchases. Labor Day sales showed shoppers seeking bargains, reflecting heightened concern over inflation and economic uncertainty.

In July, the U.S. commercial real estate market experienced mixed results, with property price gains slowing, particularly among individual investors. High interest rates and dwindling capital reserves have led smaller investors, who have long driven the market, to pull back.

Shift in Investor Behavior For years, individual investors fueled price growth through small-dollar deals, but rising interest rates have made them less aggressive. As a result, properties are sitting on the market longer, signaling a slowdown. Chad Littell from CoStar notes that while institutional investors adjusted their strategies early in response to rate hikes, individual investors have only recently begun scaling back.

July Sales Report According to CoStar’s July Commercial Repeat-Sale Indices (CCRSI), the equal-weighted U.S. composite index, tracking smaller market sales, showed only a 0.2% price increase from June, with prices down 0.7% year-over-year, marking the first annual decline since 2012. Small-dollar deals have seen the slowest growth, reflecting a cooling market.

Outlook: As individual investors pull back, market dynamics are shifting. Littell expects the slowdown to deepen, with annual appreciation likely to dip further into negative territory by year’s end, signaling the end of rapid price growth in commercial real estate.

As Halloween approaches, Party City is taking on its annual rival, Spirit Halloween, in the battle for seasonal dominance. However, this year, Party City has switched up its strategy. Instead of opening Halloween City pop-up stores, it’s transforming its 750 existing stores into Halloween hubs, packed with animatronics, costumes, and decor. This shift aims to avoid the high costs of renting temporary locations as the company focuses on stabilizing its business after emerging from bankruptcy in 2023.

Meanwhile, Spirit Halloween is expanding aggressively, with a record 1,525 pop-up stores for the 2024 season, offering immersive experiences with animatronics and interactive displays. In addition to Spirit Halloween, major retailers like Walmart, Target, Amazon, Home Depot, and Lowe’s are all competing for a share of the $12 billion Halloween market.

With Home Depot’s viral 12-foot skeleton selling out and Big Lots purchasing overstock Halloween supplies, Party City faces fierce competition. While its new strategy is bold, it remains to be seen whether shifting focus to its core stores will be enough to compete with Spirit Halloween’s expanding presence and other retail giants.

The Bascom Group, LLC has expanded its presence in California’s Central Valley with the acquisition of Old River Place, a 249-unit build-to-rent multifamily property in Southwest Bakersfield, for $56.6 million. This marks Bascom’s sixth acquisition in 2024, further solidifying its strategy of investing in high-demand markets.

Despite a challenging market with high interest rates, Bakersfield’s strong multifamily fundamentals, including population growth and limited housing supply, have made it a prime investment location. With occupancy rates consistently above 95%, Old River Place is well-positioned to meet the growing demand for rental housing.

Bascom plans to upgrade unit interiors and enhance the property’s exterior and amenities, offering affordable yet desirable housing. The acquisition was financed by JLL and TPG Real Estate Finance Trust, with The Mogharebi Group representing the seller.

Bascom’s continued investment in the region underscores its commitment to growing its multifamily portfolio, especially in fast-growing markets like Bakersfield.

The office market may be nearing a turning point. A recent CBRE report shows a shift in corporate real estate executives' outlook, with 38% planning to expand their office space over the next three years—up from just 20% last year. At the same time, the number of companies expecting to downsize has dropped to 37%, the lowest since 2021.

This change could signal that the worst of the downsizing trend is behind us. For the first time since Q3 2022, the U.S. office market recorded positive net absorption, meaning more space was leased than vacated in Q2 of 2024. However, office vacancy rates remain high and are expected to peak at 19.8% by mid-2025.

Larger companies are still reducing space, while smaller firms are shifting toward expansion, having reassessed their post-pandemic office needs. This new dynamic makes it crucial for CFOs and decision-makers to strategically navigate leases, using data-driven insights to secure favorable terms in a still-challenging market.

As remote work continues to influence demand, the office market's recovery will depend on how companies adapt their real estate strategies. With careful planning and the right market intelligence, businesses can position themselves to thrive in this evolving landscape.

As we progress through 2024, commercial real estate shows a mixed landscape influenced by economic factors like inflation and labor market shifts.

The office sector remains strained, with vacancy rates at a record high of 13.8% in July. Although leasing activity is down 63% from pre-pandemic levels, the pace of new vacancies is slowing, reducing unoccupied space from 58 million to 44 million square feet over the past year.

High mortgage rates have boosted demand for rental units, with net absorption up 90% year-over-year. Despite strong demand, new construction has kept vacancy rates near 8%, with rent growth steady but modest.

Retail space availability is at a record low, with only 4.7% available for lease. Despite a 40% drop in net absorption, the vacancy rate remains stable at around 4%, indicating continued tight conditions due to limited new construction.

The industrial sector is cooling, with net absorption down 70% from last year and rent growth slowing to 3.6%. Vacancy rates have risen to 6.5% as inventory outpaces demand, though easing inflation could revive demand.

Hotel occupancy has stabilized at 63%, still 3% below pre-pandemic levels. While full recovery remains elusive, the sector's current stability is a positive sign amid ongoing challenges.

Conclusion

The second half of 2024 presents a varied landscape for commercial real estate, with opportunities and challenges differing across sectors. Investors must stay agile to navigate these shifting dynamics.

Kern County, California, is at the forefront of a groundbreaking environmental initiative thanks to a pilot project by Avnos Inc. This project, located near Shafter, introduces a cutting-edge technology known as Hybrid Direct Air Capture (HDAC), which simultaneously removes carbon dioxide from the atmosphere and produces water. In a region where water is scarce, this dual benefit is a significant breakthrough.

The HDAC technology developed by Avnos captures 30 metric tons of CO2 annually while generating 39,626 gallons of water. Unlike other carbon capture methods that consume large amounts of water, Avnos' approach is not only more efficient but also environmentally sustainable, making it highly deployable across various regions.

Kern County's unique geology, established infrastructure, and industrial expertise make it an ideal location for such large-scale carbon removal projects. Avnos is partnering in four direct air carbon removal projects, including two in Kern, which have secured multimillion-dollar grants from the U.S. Department of Energy. These projects are poised to create numerous jobs in engineering, construction, and maintenance, leveraging skills from the local energy sector.

In addition to its environmental impact, this project contributes to the local economy by offering new job opportunities and supporting workforce development through collaborations with the Kern Community College District and the California Renewable Energy Laboratory.

Rep. David Valadao, who recently toured the facility, expressed strong support for the initiative, emphasizing its potential to reduce legacy emissions and protect local energy jobs. As Avnos scales up its operations, this technology could have far-reaching effects on both climate action and economic development in Kern County and beyond.

This pilot project represents a significant step forward in the fight against climate change while providing tangible benefits to the local community, setting a precedent for future initiatives in sustainable technology.

The national office market is showing signs of stabilization as major corporate tenants like Bank of America, Fannie Mae, Bain Capital, and Verizon commit to large lease renewals. These deals account for nearly half of the 156 office leases over 100,000 square feet signed this year, totaling over 14.1 million square feet, according to CoStar data.

Notable renewals include Vertex Pharmaceuticals in Boston, extending its lease until 2044, and Aimbridge Hospitality in Texas, renewing for five years. These renewals are helping maintain occupancy levels, even as companies remain cautious, opting to renew in place rather than relocate.

The pandemic has led to a reevaluation of office space needs, with many companies downsizing or offloading excess space. However, 80% of tenants in a recent CBRE survey expect to increase their spatial requirements over the next three years, indicating a shift towards in-person work and future growth.

While new demand remains slow, these lease renewals are a positive sign, laying a stable foundation for the office market's recovery.

Starting March 2025, Freddie Mac and Fannie Mae will enforce new lease standards for multifamily properties seeking financing, aiming to bolster tenant protections. These standards include a mandatory five-day grace period for rent payments, a 30-day notice for rent increases, and a 30-day notice for lease expirations.

Borrowers must incorporate these standards within six months of closing a loan, and full compliance is required within 24 months. Non-compliance will result in penalties, including potential default. While certain properties, like manufactured housing and senior housing, are exempt, most new loans will fall under these requirements.

Developed in collaboration with the Federal Housing Finance Agency (FHFA), these policies are designed to enhance transparency and communication between landlords and tenants. This move underscores Freddie Mac and Fannie Mae's ongoing commitment to affordable housing and tenant rights.

Alimentation Couche-Tard, the parent company of Circle K, has made an unsolicited offer to acquire Seven & I Holdings, the owner of 7-Eleven. The proposed $38.5 billion deal would combine two major players in the U.S. convenience store market, potentially controlling 20% of the market.

7-Eleven, the largest U.S. convenience store chain with 12,601 locations, currently holds 14.5% of the market. Couche-Tard’s Circle K and other brands account for 4.6%. The combined entity would pose a significant challenge to other competitors.

The offer is still under review by a special committee of Seven & I’s independent directors, with no guarantee of a final agreement. This potential merger could significantly reshape the U.S. convenience store landscape, continuing the industry’s trend of growth through acquisitions.