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- 🚦The Hard Corner
🚦The Hard Corner
Happy Thursday!
We're your go-to source for the latest news in the retail and finance sector of commercial real estate. Every other week, we'll provide you with a concise and insightful roundup of the key stories shaping our markets.
On this week’s edition, Goldman Sachs raises the U.S. recession risk to 25% as economic uncertainties persist, while Jeremy Siegel calls for aggressive Fed rate cuts to stabilize inflation and employment. Meanwhile, the real estate sector faces challenges with rising interest rates and stricter loan terms, making financing more costly and complex for developers.
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📉 Market Spotlight
S&P 500 Current: 5,620.85 2 Weeks Ago: 5199.05 | 10 Year Treasury Current: 3.81% 2 Weeks Ago: 3.95% |
1 Month SOFR Current: 5.34% 2 Weeks Ago: 5.35% | WSJ Prime Rate Current: 8.50% 2 Weeks Ago: 8.50% |
*Data from 08/21/2024
📰 Featured News
U.S. Retail Landscape Sees First Net Store Closures in Two Years
For the first time in two years, the number of store closures in the U.S. has surpassed store openings, signaling a shift in the retail landscape. A surge in bankruptcy filings among struggling retailers has driven this trend, leading to a net loss of 122 stores so far this year, according to Coresight Research.
The Shift in Retail Closures and Openings: As of August 9, 2024, the U.S. has seen 4,548 stores close their doors, outpacing the 4,426 announced openings. This shift marks a significant change from the past two years, where openings slightly edged out closures. A key contributor to this change is Big Lots, the Ohio-based furniture and home goods retailer, which recently announced plans to close 258 locations.
Bankruptcies and Store Closures Surge: The retail sector has witnessed a wave of Chapter 11 bankruptcy filings and store closures, particularly among home-related retailers. This trend began around May during the ICSC national retail real estate conference and has continued into the latter half of 2024. Despite this, the overall demand for retail space remains strong, with the national retail vacancy rate at just 4.1%, indicating a tight market for available space.
Sector-Specific Challenges: Retailers in the home improvement and furnishings sectors have been particularly hard-hit by high inflation and rising interest rates, which have dampened consumer spending. Home Depot, the world’s largest home improvement retailer, has reported a projected drop in same-store sales for 2024, reflecting the broader challenges faced by the industry.
Bright Spots Amid the Closures: Despite the uptick in closures, there are still signs of growth in the retail sector. Companies like Dollar General, Burlington Stores, and TJX Cos. are expanding, with hundreds of new locations planned. Additionally, luxury retailer Gucci has recently opened a new store at the American Dream megamall in New Jersey, highlighting the ongoing demand for retail space in certain segments.
Conclusion: The rise in store closures in 2024 is a reflection of both sector-specific challenges and the broader economic environment. While the retail landscape continues to evolve, the demand for space remains robust, particularly in high-demand areas. As the year progresses, the industry will be watching closely to see how these trends unfold and what they mean for the future of retail in the U.S.
🚦 The Hard Corner Picks
Goldman Economists Raise U.S. Recession Risk to 25%: Goldman Sachs economists have increased their estimate of the likelihood of a U.S. recession from 20% to 25% amid ongoing economic uncertainties.
Jeremy Siegel Urges Immediate 75-Basis Point Rate Cut: Economist Jeremy Siegel urges an immediate 75-basis point Fed rate cut, followed by another in September, to stabilize the economy as inflation nears target and unemployment rises, though Fed action is uncertain.
Financing Commercial Real Estate Today: Rising interest rates and stricter loan terms are making it harder for developers to secure financing, forcing them to rely on more costly and complex funding options.
Real Estate’s Struggle with Fed Rate Hikes: The Fed's aggressive rate hikes have raised borrowing costs and slowed real estate activity, with experts suggesting more targeted inflation measures could have mitigated the impact.
Brokerage Stocks Surge Amid Rate Cut Hopes: Brokerage stocks have surged amid optimism for a September Fed rate cut, with stronger Q2 earnings and increased transactions boosting confidence in commercial real estate's recovery.
Fed Rate Cuts Expected Despite Slight Inflation Rise: A slight rise in U.S. inflation is unlikely to stop the Federal Reserve from cutting rates in September, as markets remain confident in the Fed's plan to boost economic growth.
Texas Emerges as a Growing Financial Hub: Texas is quickly becoming a financial hub, drawing businesses and talent from traditional centers like New York and California due to its favorable business climate, lower costs, and quality of life.
Gold Prices Fluctuate Amid Strong Dollar and Economic Data: Gold prices fluctuate slightly on August 16 due to a stronger U.S. dollar and economic data, with investors monitoring potential Fed rate moves and global economic trends.
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🛒 The Retail Corridor
Drugstores Adapt Amid New Industry Challenges: Drugstores are adopting new business models to counter challenges like shrinking prescription profits, rising competition, and staffing shortages, aiming to stay profitable in a changing healthcare landscape.
Real Estate Hit Hard by Fed’s Rate Hikes: The Fed's aggressive rate hikes have raised borrowing costs and slowed real estate activity, with experts suggesting more targeted inflation measures could have mitigated the impact.
Ace Hardware Invest $1B in Experiential Store Concept: Ace Hardware is investing $1 billion in an "experiential" retail concept to enhance customer engagement and differentiate itself with unique in-store experiences, following the trend of immersive shopping environments.
Blink Fitness Files for Bankruptcy Owes, $400 Million: Blink Fitness, owned by Equinox, has filed for bankruptcy with $400 million in debt, as it seeks to restructure amidst ongoing financial struggles.
High Construction Cost Stifle Retail Development: Rising construction costs are slowing retail development, leading developers to delay or rethink projects as the sector struggles to recover and adapt post-pandemic.
7-Eleven and Circle K Explore Merger Amid Market Pressure: Trader Joe's plans to open 24 new stores nationwide, including 8 in Southern California, maintaining steady growth amid intense competition.
Starbucks Names Brian Niccol CEO for Global Growth: Starbucks has appointed Brian Niccol, former Chipotle CEO, to lead global growth and strengthen its strategy amid rising competition and changing consumer demands.
Top 50 Fast-Food Chains of 2024 Ranked: The 2024 ranking of the top 50 fast-food chains reveals the industry's biggest players, highlighting their growth, market presence, and consumer appeal while also indicating key trends and shifts in the competitive landscape.
Editor’s Note
We dedicate significant effort into crafting a newsletter that balances information with engagement, but let's be honest – newsletters aren’t our day job. Marhilus Ventures is a diversified investment firm, involved in real estate, finance, and business investments. Our niche? Retail assets, hence "The Hard Corner." Specializing in middle-market value-add properties, both single and multi-tenant, we strategically invest capital through direct equity, joint venture equity, and debt structures across the United States.
Go Check out our investment criteria, if you have anything that may be of interest, shoot it over. We appreciate it!