Jerome Powell's Insider Tips: Best Time to Sell Retail Space Unveiled!
Marc Perlof • March 7, 2024
Hey Retail Real Estate Rockstars! Let’s jump into some cool stuff that’s happening in the world of money and business, especially for those of us who own retail real estate. We're mixing together some smart words from Jerome Powell, the big boss at the Federal Reserve from a 60 Minutes interview that took place on February 1, 2024, and the testimony that took place today, March 6, 2024. Here’s what’s going on and why you should care:
From the Federal Reserve's Report (March 6, 2024):
- Economy is Booming: Last year, the economy grew by 3.1% thanks to people buying lots of stuff. This is great news for us because when people spend money, retail gets busy, and we make more money.²
- Jobs Everywhere: Unemployment is super low at 3.7%, meaning most people have jobs and money to spend on retail goods and services.²
- Prices Getting Better: Things have been pretty expensive because of high inflation, but the good news is, prices are starting to go down.² This means it might cost our tenants less to run their stores, and people might start buying more because things aren't as pricey, thus asking rents might increase.
And, from Jerome Powell on 60 Minutes (February 1, 2024):
- Inflation Cooling Down: Inflation dropped from a high of 9% to about 3%, which means things aren’t getting expensive as fast as they were before.¹ This is good for us, our retail tenants and their customers.
- Interest Rates on Pause: The Fed isn’t planning to change interest rates right now. They want to make sure everything stays stable before they make any moves.¹ This is important for us when we think about the next step for our properties. But it doesn’t mean the Fed is going to wait for inflation to be exactly at 2%.
- Strong Economy: With lots of jobs and a strong economy, people have more money to shop, which is amazing for our retail spaces and tenants.¹
- There might be a rate decrease of ¼ to ½ point in the Federal Funds rate in June 2024 and then a pause from there.
All this information points to a pretty stable time for those of us in retail real estate. Whether you're thinking about selling, buying more, or just making your current spaces better, things are looking up.
If you’re figuring out what to do with your retail properties and want some advice, let’s connect. Call, Text, or DM me for more info.
With all these updates from Jerome Powell and the Fed, how can you use this information to make smart moves with your retail properties in the next few months?
#RetailRealEstate #SmartInvesting #MarcRetailGuy #EconomicUpdate #PropertyGoals #FinanceSavvy
Sources:
Fed Cuts Rates Again, Boosting Confidence in CRE Recovery In a closely watched decision, the Federal Reserve cut its benchmark interest rate for the second consecutive month. The new target range of 3.75% to 4% reflects continued efforts to ease financial conditions and stabilize capital markets, even as economic signals remain mixed...
If you own retail real estate, here’s what might change for you. The hospitality workers’ union UNITE HERE Local 11 is pushing a bold new initiative to raise the City of Los Angeles $30 minimum wage for all city employees by July 1, 2028¹. While the first ordinance covered hotel and airport workers, the union’s latest ballot measure would extend this wage citywide². As an expert in retail real estate, here’s what that means for your properties. Higher wages will immediately impact tenant affordability and rent-to-sales ratio calculations that drive lease viability. Many retailers operate with payroll costs at 25 to 35 percent of gross revenue, leaving little cushion for a wage that’s nearly double the current state minimum of $16/hour³. When margins tighten, tenants face a choice: raise prices, cut staff, or negotiate rent. For landlords, that translates into valuation pressure because commercial property values depend on stable rental income. The small business impact in Los Angeles could be profound. Independent restaurants, boutiques, and service operators, the lifeblood of local shopping centers, run on razor-thin profits. If forced to meet a $30 wage, some may relocate to cities like Burbank or Glendale, where municipal wage laws are lower, or close entirely⁴. That shift could spark short-term vacancy spikes and longer lease-up periods. Still, there’s a possible upside. When low-wage workers earn more, they spend more locally. For well-positioned centers with necessity-based tenants: grocers, pharmacies, quick-service restaurants, rising wages could strengthen revenue resilience. Key takeaways for retail landlords: Audit tenant financial health and exposure to rising payroll costs. Review lease clauses that address operating-cost pass-throughs. Model new rent-to-sales thresholds under a $30 wage scenario. Track tenant retention and market-rent shifts across nearby cities. Prepare for valuation adjustments as cap rates reflect greater income volatility. If you own retail real estate in the City of Los Angeles, now’s the time to stress-test your portfolio. Let’s review your leases before this wage shift hits. Call or DM me for more information. When the $30 wage arrives, will higher pay strengthen LA’s consumer base or hollow out the city’s small-business retail core? #LosAngeles30MinimumWage #RetailRealEstateInLosAngeles #TenantAffordabilityAndRentToSalesRatio #SmallBusinessImpactLosAngeles #CommercialPropertyValuesLosAngeles
Toys"R"Us opening 10 flagships, 20 seasonal shops — here are all the locations The brick and mortar comeback of Toys"R"Us is moving into high gear ahead of the toy industry’s busiest season. In September, the retailer said that, in partnership with Go! Retail Group, it was planning to open 10 flagships and 20 seasonal holiday shops in the U.S. by year's end...
