What About Commercial Real Estate Spooks You?

What spooks you this Halloween? Is it inflation? Interest rates? The future of Office? The upcoming water shortage? Let’s take a look at each of these.

Inflation – Yes, it is true.  Inflation has risen by more than 9% since January, 2022.   When questioned, most would say inflation is worse than they initially expected.  Given inflations current trend, we will undoubtedly enter into a recession within the next year. The biggest questions around a recession are when will we feel it in Albuquerque? And what will it deliver to us?  It is well know Albuquerque and New Mexico fair much better than other parts of the nation as our peaks are never as high and our valleys are never as low as other parts of the nation.

Interest rate hikes

Yes, it is true. The Federal Reserve has increased interest rates by more than they have in almost thirty years. In September, the Fed increased interest rates by another 75 basis points. Yet is predicted they will raise them two more times before the end of the year. Raising interest rates are the Federal Reserve’s way to slow down inflation and to keep us from spending. That said, there is good news on the horizon. Although we will continue to see interest rates increase into 2023, it is predicted this is not a “hike and hold” scenario. Charles Schwab reports it appears the majority of the Fed sees rates falling in 2024. It is further forecasted the Fed is willing to let the economy fall into a recession to get inflation down.

Future of office

Try as they might, companies continue to want their employees back at the office.  However, many workers are simply ignoring their employer mandates. The Los Angeles Times recently reported “85% of bosses say they want employees to spend half or all of their time working in the office.” As lease terms come to an end, every employer is faced with the thought of “right sizing.” However, many are struggling with what that looks like as it relates to the size of their footprint. Bigger to grow the company, smaller with hoteling where more than one employee shares the same desk? The fact remains, every employer wants their employees in the office as it improves communication, culture, timelines and ultimately the bottom line.

Water shortage

What spooks me is the reality we will run out of water at the current rate and method by which we use it and waste it. I recently heard an economist say his biggest concern for New Mexico is our lack of water. New Mexico relies both on surface water and ground water. 87% of New Mexico’s Public water supply comes from ground water, according to the EPA. The Albuquerque Bernalillo County Water Utility Authority (ABCWUA), a partner of the US Environmental Protection Agency’s (EPA’s) WaterSense program has implemented several water efficiency measures. These measures have certainly paid off and have reduced water consumption from 252 gallons per day to 150 gallons per day between 1994 and 2011. Keep up the good work, New Mexico. The future of our state depends upon you and your conservation. Now, if we could only get Mother Nature to contribute a bit more to our annual rainfall!

Bottom line

All in all, commercial real estate sales will dip due to the increase in interest rates. The continued rise in inflation will likely put us in a recession.  That said, neither will be as impactful as the great recession we recently lived through.  Commercial real estate is still the best long term investment for your portfolio. So, let’s talk. I am still finding good deals in today’s market.