The looming repercussions of the lockdowns forced the hands of lawmakers to subsidize its’ citizens to stay home and lower interest rates to stimulate the economy. This was an unprecedented global phenomenon. The after-effects of this would create massive inflation, and increased demand for goods, especially automobiles and luxury items as well as construction. This unparalleled demand created an enormous strain on the supply chain both on the production/manufacturing end as well as the warehouse logistics end.
It is evident that there is a direct correlation between inflation and the pricing of commercial real estate. Often, the “cure” to inflation is an increase in federal interest rates which have a direct impact on commercial real estate valuations. Economists have been expecting an increase in interest rates but were not expecting the federal government’s recent suggestion of three potential hikes in 2022. Additionally, there are rumored hikes in 2023, and more in 2024. The message is clear: due to the rapid inflationary pressures, driven largely by supply chain disruptions, the Federal Reserve has an aggressive plan to increase these rates.
We can spend all day long talking about cap rates, interest rates, and investment sales, but at the end of the day the trends begin with the renters and everything else follows suit. So what are our renters up to?
American importers pay a significant portion of the increase and US consumers pay the remainder due to the increase on goods manufactured in China. However, China’s economy is slowing, with consumers holding back and infrastructure spending slowing sharply. This slowdown is expected to worsen as America’s tariffs ramp up. On the other hand, the United States has continued to experience vigorous economic growth, including the lowest unemployment rate since 2000.