If you needed to choose a buzzword to describe the past few weeks, “uncertainty” would be the frontrunner. In fact, Chair Jerome Powell used the word 22 times during the Federal Reserve’s March confab, during which rates were held steady for the second meeting in a row.
As of the middle of April, the situation continues to evolve. Beyond the baseline 10% fee on all imports, the administration enacted a 90-day pause from the original deadline, giving time for negotiations with dozens of countries. There has been considerable speculation about the long-term effects on inflation, employment, and the overall economy—causing a rollercoaster of up and down days in the stock and bond markets.
Uncertainty in CRE: A Matter of Perspective
On the ground in the CRE market, the meaning of uncertainty depends on your vantagepoint. For owner-occupants, their situation is akin to consumers in the residential market at the entry- or move-up level. For example, someone buying an industrial building or office property for their own use and occupancy is going to need financing. Beyond sensitivity to property prices and interest rates, their concerns about “unknowns” revolve around how tariffs and/or government cutbacks may impact their costs, revenues, and overall business prospects.
While CRE investors may be concerned about uncertainty in some of those same economic factors, they are confidently deploying capital and making deals:
- We are seeing good deal flow on income-producing multifamily assets, now that pricing experienced some of the discounting that needed to happen. The $107.5 million sale of the Soltra Kierland luxury apartment property in north Scottsdale grabbed the highest price per unit for a 50-plus-unit multifamily sale in metro Phoenix since 2022.
- Industrial buildings, particularly those that are tenant-ready, are seeing plenty of activity.
- Some investors are really excited about retail, while well-priced office product is holding its own too.
- Finally, we are seeing a lot of speculative land deals. People and businesses are bullish on Arizona’s future, with TSMC being just one example of how large investments can create a virtuous circle with suppliers and other growth opportunities. Homebuilders, build-to-rent, and multifamily developers are also showing significant activity in raw land. For example, Taylor Morrison Home Corp. just cut a $32.2 million cash deal for 156 acres (for a master-planned community of 1,225 homes) near the TSMC plant.
When Might We See Clarity?
The old saying attributed to Mark Twain is “History doesn’t repeat, but it often rhymes.” In reality, this market is not necessarily rhyming with anything in the past few decades. The looming question is when we might see the uncertainty start to unwind. As we wait for negotiations in the coming weeks, Treasury Secretary Scott Bessent is optimistic about achieving “substantial clarity” before the deadline. Even once the tariff rates are defined, however, it remains difficult to project their long-term economic impacts.
For the time being, future Fed rate cuts are among the unknowns. Powell has maintained a wait-and-see position on the economy’s direction, while expressing concerns about inflation and employment. One of the administration’s primary objectives is to lower interest rates, with Bessent focused on 10-year Treasury yields in order to foster easier borrowing for businesses and individuals, while lowering debt service costs at the federal level.
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