YardDog Market Watch - December 4, 2024

THIS WEEK’S TOP 3
Stats to Know

1) Net-lease investment volume increased by 7% year-over-year in Q3 to $10.4 billion.

• Rebound After Declines: Keep in mind, the 7% year-over-year increase and 5% quarter-over-quarter increase experienced in Q3 comes after eight consecutive quarters of year-over-year declines.

• Net Lease Cap Rates: The average net-lease cap rate rose by 14 bps quarter-over-quarter and 68 bps year-over-year to 6.7%. According to CBRE, much of the increase was driven by a 90 bps rise in the retail cap rate (industrial didn’t see that large of an increase).

• 10-Year Treasury Yield and Cap Rates: The 10-year Treasury yield ended Q3 at 3.7%, which narrowed the spread between the 10-year Treasury yield and net-lease cap rates to 300 bps. CBRE forecasts slower Fed cuts next year and that rates will stay above 4%.

  

  Cap Rates & Spreads Between 10-Year Treasury Yield (CBRE)

2) US Black Friday overall spending rose 3.4% year-over-year, but e-commerce sales increased by 14.6% 

• E-Commerce Sales Outpace In-Store Sales: According to Mastercard SpendingPulse, a metric measuring U.S. retail sales, brick-and-mortar sales only grew 0.7% while e-commerce sales grew by 14.6% year-over-year.

• Increase Even When Adjusted for Inflation: Facteus, a data firm, tracked spending patterns on credit and debit cards on a seven-day rolling basis year-over-year and noted that when adjusted for inflation, online sales grew 8.5% and in-store sales declined 8%.

• Shorter Sales Season This Year: This year there are 5 fewer days between Thanksgiving and Christmas as compared to last year, so many deals started earlier than usual. Also, not surprisingly baby boomers are more likely to shop in stores followed by Gen X, Millenials, then Gen Z.

3) Fed Funds Futures are now showing a 73% chance of another 25 bps cut this month.

• In Favor of Cuts: Federal Reserve governor Christopher Waller said that it still depends on incoming data and other arguments, but he was leaning toward favoring a cut in interest rates at the central bank’s December meeting.

• Inflation Has Been Persistent: The past two months have seen inflation readings that were ”somewhat stiffer than anticipated”, but Waller mentioned economic forecasts suggest inflation will return to the 2% target.

• Next Meeting: The Fed's next meeting is Dec 17-18.

CHART OF THE WEEK 
Sale-Leaseback Net Lease Investment Volume

Sale-leaseback investment volume fell 34% to $5.4 billion in Q3 2024, with its share of net-lease transactions dropping to 14% from 18% in Q3 2023 due to a softer M&A environment and improved capital markets. Despite elevated Treasury yields impacting capital activity, CBRE expects net-lease investments to remain resilient.

NOTABLE QUOTES
They said…

"These credit facilities demonstrate the growing debt capital formation within the IOS sector. Catalyst is fortunate to be among a few companies driving this sector maturation forward. We are grateful to our banking relationships and LPs for choosing to partner with us as they seek exposure to this fragmented and attractive opportunity set,”
- Max Heiden, Co-Founder and Partner of Catalyst Investment Partners

“We are moving policy over time to a more neutral setting, but the path for getting there is not preset. In considering additional adjustments to the target range for the federal funds rate, we will carefully assess incoming data, the evolving outlook, and the balance of risks.”
- Jerome Powell, Fed Chairman

RUMOR HAS IT
We’ve heard…

• The Unemployment Report (to be released this upcoming Friday by the Bureau of Labor Statistics) will likely show an increased unemployment rate and a deceleration in jobs being added.

Make sure you’re subscribed to the newsletter where we’ll cover these stories and more in future editions!

Please note that these are just rumors we’ve heard in the market. We are not representing any of these claims as true or false, and will cover them in greater detail when more sources and information is available.