2021 March—Rising Optimism 💪🏼
Photo by Ian Taylor on Unsplash
Markets
Despite a sell-off in the last week of February U.S. equities ended the month on a positive note with the S&P 500®posting a gain of 2.76%. This was driven by optimism on COVID-19 vaccines as well as continued monetary and fiscal stimulus. Investors’ belief that small and midcap companies tend to be more cyclical continued as the S&P MidCap 400® was up 6.8% and the S&P SmallCap 600® was up 7.65%. Even though markets rallied, S&P 500 Volatility remained high with the VIX® closing the month at 27.95. That is an occurrence that has many investors wary.
Employment
Non-Farm employment rose by 379,000 in February and unemployment rate was at 6.2% according to the U.S. Bureau of Labor Statistics as of March 5th, 2021. As seen in the charts below the levels changed very little but are still above the pre-pandemic levels of 3.5% in February 2020.
Source: News Release Bureau of Labor Statistics
Inflation
As the economy emerges from Covid there has been some fears of inflation as we have seen by the market moves. CPI was up 0.4% for February and is at 1.7% for the trailing 12 months.
CPI
Vaccinations
COVID 19/Vaccinations according to data from Statista: COVID-19 has muted as expected and now we are facing more infectious strains. Experts are confident that current vaccines will be effective. Current doses issued are 95.7 million, with 33 million fully vaccinated.
Latest Fiscal Stimulus Update
The latest fiscal stimulus plan includes $40 billion in housing and homelessness assistance, $26 billion for rental assistance, and $5 billion for homeless assistance. This plan combined with the first stimulus plan in late 2020 is an amazing investment in all the people that operate and own apartment housing. As large as these plans are they are only a band-aid and hopefully we continue to see falling infection rates allowing us to return closer to some “normal” business activity.
Commercial Real Estate
Multi-family
Apartment rent collections for February were at 93.5%, up 0.20% from January and 1.6% less than the 2020 February collection rate of 95.1%. We are still seeing rents collected on our properties and rehab plans on schedule.
Hospitality
There are certainly opportunities for many investors willing to take on the current risks and uncertainty in the Hospitality. Many sources are stating there is a rise in defaults of hotels. Being a trader in a former life you learn chaos and distress is where money is made. I am certain there are many opportunities at good discounts if you have the capital and time horizon to see the trade to fruition. That is not a trade for our portfolio currently.
Retail
Outlook is still a recovery over time. In Deloitte’s latest industry outlook report 60% of polled retailers said they believed recovery to pre-pandemic levels would be in next year to two years while 25% believe 2 to 5 years to achieve pre-pandemic levels.
Office
In JLL’s notes from their last Office Outlook research paper:
The U.S. office market recorded the first instance of more than 40 million square feet of occupancy losses in a given quarter in Q4, with a further 40.6 million square feet of negative net absorption bringing 2020 total occupancy declines to an unprecedented 84 million square feet. As a result, total vacancy rose to 17.1% at year-end.
The most prominent effect of COVID-19 on the office market remains the rapid expansion of the sublease market. In Q4, an additional 18.4 million square feet of sublease space hit the market, bringing the segment to more than 141.5 million square feet. Over the course of the pandemic, the sublease market has expanded by nearly 47.6 million square feet, or 50.7%.
This is going to lead to a prolonged period of lower lease terms, price concessions that will stress the financial near-term outlook for office space. Many believe there will be opportunities outside of urban centers as people still desire an office for collaboration. Only time will tell, and we will certainly have our eye on those possibilities.
