Headlines

What’s new in the world of Real Estate

• Is a rate cut coming?

• Data centers in record demand

• Rents are growing again

• Are office buildings bargains now?

Plus: The best beach towns, positive momentum for CRE, a student housing update, and more.

Listing of the week: Bennifer’s mansion is on the block.

Performance

_{as of market close on July 15}

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Market Updates

Good inflation news is raising the chances of interest rate cuts. The Consumer Price Index (CPI) declined by 0.1% last month, and the 3% rise year-over-year is getting closer to the Federal Reserve’s stated 2% target - which Fed Chair Jerome Powell said did not have to be hit before rate cuts begin. As a result, traders now place an 89% chance of a rate cut in September, up from 52% last month. They also see an 89% chance of two or more rate cuts through the end of 2024. In the immediate aftermath of the inflation news, real estate stocks saw the biggest gain of any sector in the S&P 500, as a lower rate environment could lead to a market resurgence.

Rental rates for U.S. data centers have surged 20% year-over-year. This growth came despite inventory growing 24.4% in Q1. It highlights the incredible amount of demand there is for data centers nationwide, due in large part to the growing AI industry. Vacancy rates have hit a new low, with the largest market in the country, Northern Virginia, seeing vacancy below 1% despite adding 18% more inventory in Q1. A record amount of data center space is under construction, but over 90% of that space is already pre-leased, so expect further increases in rent until supply can catch up, as long as AI remains in vogue.

Rents are growing at their fastest pace in nearly a year. The typical rent in the U.S. in June was $2,054, a 0.5% increase over May and a 3.5% increase year-over-year, the highest growth rate since last July. Relatedly, the share of listings where landlords are offering concessions has fallen slightly as they grow more confident in the market. The markets with the highest annual rent increases were Hartford, Cleveland, Louisville, Providence and Milwaukee.

Bargain-hunting investors are targeting distressed office buildings. As prices have dropped an estimated 25% or more, and with nearly $1 trillion of commercial real estate debt maturing in the next year, more distressed assets than ever could be hitting the market. Private equity firms have allocated 64% of their commercial real estate dry powder to the office sector as they expect strong buying opportunities to emerge in the near future.