US real estate operators are nervously scanning the horizon for signs of a US economic slowdown as tariffs begin to bite and continuing high interest rates undermine consumer confidence.
The Conference Board’s Consumer Confidence Index deteriorated by 5.4 points in June, falling to 93.0 from 98.4 in May. The Expectations Index fell 4.6 points to 69.0, substantially below the threshold of 80 that typically signals a recession ahead.
Just last week, German property lender Deutsche Pfandbriefbank announced it was exiting the US entirely, planning to sell or wind down its $4.6bn loan book. Its CEO previously called the current US economic climate “poison” for long-term investment, citing political volatility and inflation risk.
There is also growing concern about financial stability. This month, the Financial Stability Board identified liquidity mismatches, leverage and valuation opacity as key vulnerabilities among non-bank commercial real estate investors, such as REITs, which could further destabilise the broader economy if conditions worsen.
In its June Commercial Real Estate Chartbook, MetLife Investment Management bemoan “we were a year into the [commercial real estate] recovery when April 2’s broad-based tariffs landed.” MetLife now believes “policy-driven volatility likely to continue this summer and beyond”, stating “retail assets in lower income markets or submarkets face risk due to their reliance on goods imported from Asia”. The firm also warns that “waning CEO confidence could slow the nascent office sector recovery”.
Worries about tariff-induced inflation are also keeping interest rates high depressing construction activity. CBRE highlights latest industrial completions fell to their lowest levels since 2017, and office space under construction is down 82% from 2020. Retail deliveries hit a decade low at 4.5m sqft.
Mortgage rates are also at punitive levels. According to Citi Research: “Housing has moved into focus as the most pressing risk to the economy. We see weakening activity in the sector and historical patterns that link housing downturns with recessions.” In the Fannie Mae survey published this month, some 74% of respondents said it was a bad time to buy.
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