MCM Market Insights Q2 2023

• July 17, 2023

📊 Market Insights 🌐

The close of the 2nd quarter 2023 brought modest stabilization of US and international capital markets, with a keen focus on interest rates’ impact on the Commercial Real Estate (CRE) sector. At March Capital Management (MCM), we leverage our expertise to anticipate systematic risks and identify compelling investment opportunities.

💼 Economic Analysis 📉

The second quarter highlighted a successful navigation of downside risks, but stronger economic data suggests the Federal Reserve will continue hiking interest rates. With the anticipation of 1-2 more rate hikes in 2023, we expect a deceleration of GDP growth. Understanding these trends helps us position MCM for optimal investments in the CRE market.

📈 Interest Rates and CRE 🏢

The interest rate curve indicates a struggle to rein in inflation, resulting in higher long-term Treasury rates. MCM closely monitors this “higher for longer” rate policy, as it impacts short to medium-term valuations and the investment climate, including the CRE sector.

🔎 CRE Capital Markets 🌆

Recent data suggests a significant erosion of CRE valuations, with overall values down 11.2% YoY. Tight monetary policy, weakening fundamentals, rising costs-of-capital, and tighter lending standards have contributed to a slow thawing of CRE capital markets. However, MCM continues to identify attractive opportunities in select submarkets and sectors.

🏭 US Industrial Market 📦

The industrial sector has demonstrated resilience, with minimal valuation loss compared to other CRE sectors. Despite a robust new supply pipeline, slower absorption rates, and increasing cap rates, strong rent growth has supported unit pricing. MCM utilizes this data to guide portfolio construction and identify industrial investment opportunities.

🏘️ US Multifamily Market 🏢

National multifamily rent growth has decelerated, primarily in Sun Belt regions, causing a slowdown in absorption. Although construction levels remain elevated, occupancy rates remain resilient. MCM is closely monitoring distress in the multifamily sector, identifying potential value-add investment opportunities.

🏡 SFR/BTR Sub-sector 🏢

Tightening availability of credit and high mortgage rates have reduced home inventory, supporting residential pricing. The single-family rental subsector has exhibited slightly higher occupancy rates than traditional multifamily. MCM focuses on residential investment and development, observing strong demand and performance for build-to-rent communities in target markets.

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