Market Commentary from Cushman & Wakefield
- Post-election, Treasury yields are at their highest level since July 2015. Donald Trump has been advocating infrastructure spending, tax cuts and lighter banking regulation, aiming to promote jobs and boost the U.S. economy. The prospect of a fiscal boost to the economy is sapping demand for safe haven assets, driving investors to embrace stocks and commodities. Inflation expectations are rising, driving investors to sell Treasuries and seek protection in other assets less sensitive to inflation. However, some economists think low rate environment will persist. Their position is that the protracted pace of potential infrastructure spending could mute the effect of inflationary pressure, in addition to growing concerns about prospects for international trade disputes. There is little room for error in current economic environment and policy missteps could impact growth and increase demand for safe haven USTs, which would drive rates back down. Due the rapid rise in USTs, expectation is that spreads will compress over the next couple of weeks to compensate for the move in indexes. So far spreads have been slow to tighten dramatically as a result of volatility.
- Based on Cushman & Wakefield’s Fall 2016 Capitalization Rates Survey, the real estate bull market continues despite lower sales volume. In the global context, the U.S. remains a safe haven and the top global market for investors seeking stability and returns. Fall 2016 capitalization rates compressed from 10 basis points (bps) for multifamily properties to 30 bps for warehouse properties from their respective Fall 2015 levels. Office cap rates were essentially flat compared to the prior survey, while strip centers increased 10 bps.
- Cushman & Wakefield Research recently released “Suburban Office: Is this the Next Play?” which addresses how medium to long-term investors can take advantage of current pricing dislocations (suburban office is trading at all-time high spreads to CBD assets). The full report is available here.