Net Lease News

Net Lease News

Week of November 21th 2022

MARKET

CRE BANK LOANS: WEAKER DEMAND, TIGHTER STANDARDS

• Bank loan demand was down over the immediate three months for firms of all sizes and for all CRE categories, while bank lending standards have gotten tighter.
• Over the third quarter, a major net share of banks reported having tightened standards for construction and land development loans as well as for nonfarm nonresidential loans.
• Most banks assigned probabilities between 40 and 80 percent to the likelihood of a recession in the next 12 months, with no bank reporting a probability less than 20 percent.
• Although banks in general assigned relatively high probabilities to a recession occurring in the next 12 months, most banks reported expecting the recession to be mild to moderate, should one occur.

WHAT THOSE RECENT INFLATION NUMBERS REALLY MEAN

• Wall Street rejoiced on November 10 when the October CPI reading declined and headline inflation retreated to 7.8%. Digging under the surface, there are some promising trends — including the lower price of lumber and steel and the declining cost in shipping a container from China to Los Angeles.
• Fed Chairman Powell has suggested the central bank will likely make smaller rate increases going forward, signaling an ease on the pressure, but the overnight rate will still likely increase by 50 basis points in December and by 25 to 50 basis points in February.
• Data suggests a bit of a bumpy ride in 2023. Even if a recession is averted and inflation begins to abate, there will still be ripples that affect space demand for all types of CRE. The good news is the rate movements should become less volatile and a little more predictable as the Fed eases back from its aggressive stance.

INDUSTRIAL

PORT MARKETS CONTINUE TO LEAD INDUSTRIAL GROWTH

• Port markets led the country when it comes to in-place rent growth this year. In-place rents in the Inland Empire have grown 11.6% over the last 12 months, while rents grew by 9.7% in Los Angeles, by 7.6% in Orange County, 7.6% in Phoenix, 8.9% in Boston and 7.22% in New Jersey.
• Nationally, the vacancy rate clocked in at 4% in October, down 10 basis points from the previous month.
• However, the National Retail Federation is projecting lower port volumes as many retailers stocked inventories early in preparation for the holiday shopping season. Shipments are also expected to slow as the overall economy slumps.

RETAIL

KROGER-ALBERTSONS MERGER COULD SHAKE UP SUPERMARKET REAL ESTATE IN CALIFORNIA

• The proposed $24.6 billion acquisition-merger between supermarket giants Kroger and Albertsons could result in a national wave of store closures and sell offs as the grocers look to head off regulatory concerns about competitive balance.
• The shakeouts could be most pronounced in California, home to three brands in the deal with long histories and large footprints.
• Executive boards of both companies have approved merger plans, and the chains are looking to complete the deal in 2024, if regulators approve the deal. In a bid to assuage concerns over competition, the two grocers have proposed placing between 100 and 375 stores, yet to be identified, into a spinoff company that would have its own traded stock and independent management.

JACK IN THE BOX LOOKS TO EXPAND RESTAURANT COUNT AS SALES RISE

• Jack in the Box is looking to ride rising sales and extended operating hours into added locations, with development agreements in place to add more than 300 restaurants and enter new markets in the coming years.
• The operator of more than 2,700 restaurants is looking to pivot off a 4% increase in year-over-year, same-store sales that have been boosted by steady improvements in staffing and business operating hours as effects of the pandemic have waned.
• The company is targeting 4% annual location growth starting next year, with 25 to 30 openings planned in fiscal 2023 for its flagship Jack burger brand and eight to 12 openings of Del Taco, a chain of Mexican-inspired fast-food restaurants it acquired earlier this year for $585 million.

BRICK-AND-MORTAR RETAIL ANTICIPATES HOLIDAY SHOPPING BOOST

• Black Friday, the traditional beginning of the holiday shopping season, may have evolved, but it remains a crucial sales day, especially this year when retailers’ profit margins are being squeezed as the result of high inflation.
• Over time, and exacerbated by the pandemic in 2020 and the corresponding rise of e-commerce, holiday retail sales began to spread out and be less concentrated on the one day.
• Thanksgiving weekend is anticipated to draw a record number of shoppers, and sales for the overall holiday season are forecast to rise. Consumers are expected to keep spending despite the economic headwinds of record inflation and potential recession.

DOLLAR TREE, INC. REPORTS RESULTS FOR THE THIRD QUARTER FISCAL 2022

• Compared to the prior year’s third quarter: Consolidated Net Sales Increased 8.1% to $6.94 billion.
• Following price actions taken in the second quarter, Family Dollar delivered its strongest quarterly same-store sales increase since 2020 and grew comparable traffic for the first time in 12 quarters.
• YTD 2022, the Company opened 341 new stores, expanded or relocated 82 stores, and closed 128 stores. Additionally, the Company expanded its multi-price Plus offering into an additional 1,686 Dollar Tree stores and completed 684 Family Dollar store renovations.

SPECIALTY

WHY REAL ESTATE INVESTORS ARE PAYING MORE ATTENTION TO RV PARKS AND CAMPGROUNDS

• RVs have been associated with retirees who spend their golden years traveling the country. But that’s changing, and real estate investors have noticed. Encouraged by these changes and seeking higher returns than those offered by traditional property types, these investors are putting more of their money toward RV parks and campgrounds.