Kansas City Retailers Adjust to Pandemic-Era Changes in Consumer Shopping Patterns with New Strategies for the 2022 Holiday Shopping Season

CBRE’s annual holiday trends guide shows retailers adapting to stave off challenges like labor shortages and supply chain disruptions – and calling on Santa for a little help

Retailers in Kansas City have applied lessons learned from the past two years of pandemic-influenced shopping patterns to position their stores and e-commerce operations for this year’s holiday season, according to CBRE’s annual Holiday Retail Trends Guide.

These adaptive strategies are expected to help boost national holiday spending to a 6.9 percent, year-over-year increase in fourth-quarter retail sales to $1.48 trillion, based on CBRE’s analysis of multiple industry projections.

“Retailers change their operations to align with shopping patterns, and many are continuing to adapt and overcome challenges from the pandemic such as inventory and staffing issues,” said Matt Rau, a Senior Associate with CBRE in Kansas City. “This holiday season we’re seeing retailers get a head start on ordering inventory and stocking the shelves to accommodate earlier consumer spending. Moreover, the likeliness of condensed operating hours due to labor shortages means an extended holiday shopping season will be necessary for retailers to deliver a better shopping experience and higher sales.”

To get ahead of the challenges that upended holiday shopping in recent years—including labor shortages, scarcity of certain merchandise due to supply chain disruptions and outpaced growth in e-commerce versus in-store sales—retailers across the board are largely focusing on three key trends in 2022, according to CBRE’s report.

1.  More Inventory, Less Out-of-Stock

Supply chain disruptions roiled the retail industry in 2020 and 2021 as shuttered factories and bottlenecked ports created shortages of certain merchandise in stores and online. Retailers and e-commerce companies have countered that problem this year by stocking more inventory closer to the customer, be it in stores or warehouses that are closest to large population centers.

This entailed shifting from a “just-in-time” model of stocking only what is forecast to be needed to a “just-in-case” model of amassing deeper inventories farther ahead of the season. In many cases, this has resulted in jam-packed warehouses and larger-than-usual stockpiles of loaded shipping containers behind stores or in storage yards. This is one of the factors that has pushed the vacancy rate of leased warehouse space in the U.S. to a scant 2.8 percent this year from 3.6 percent last year.

2.  Solving the Labor Puzzle

The pandemic caused disruption and displacement in the job market that the retail industry, among others, is still grappling with.

Retailers are taking multiple approaches to address the labor challenge. Some have reduced store hours, including several national retailers that have announced they won’t open on Thanksgiving this year. And some are leaning more on their e-commerce operations, as staffing fulfillment roles in warehouses has often proven easier than finding more associates for retail stores.

Another tweak involves store layouts. Many retailers have redesigned their stores to dedicate space for employees to fill online orders quickly and separate space for customers to pick up those orders, making stores more efficient and allowing for better connection between retail associates and customers.

3.  Come for the Experience, Stay for the Shopping

Retailers and shopping center owners have experimented for years with improved placemaking, which often entails adding services and experiences. Many mall owners have converted formerly vacant storefronts into Instagram-worthy moments and exhibits. Examples include the Netflix Stranger Things Experience in Los Angeles, Atlanta, and London, and Princess Diana exhibits in shopping centers in Las Vegas and near Washington, D.C.

Finally, Santa Claus is here to help. The Santa-for-hire business is up 121 percent from 2019 to 2021 and is even more active building up to the 2022 holiday season, according to Santa-booking company, Hire Santa. The traditional Santa visit has evolved in recent years to include online appointment booking and print ordering, as well as more photo shoots with pets. Several big retailers, such as massive outdoor retailers with standalone stores, have added Santa visits at their locations.

To read the full brief, click here.

Original post: https://www.cbre.com/press-releases/kansas-city-retailers-adjust-to-pandemic-era-changes-in-consumer-shopping-patterns-with-new

Developers Continue to Face Increasing Costs

Being conservative and having contingencies are critical in today’s economic environment.

With interest rates rising much more than anticipated as well as escalating construction costs, some affordable housing deals aren’t penciling out and others are experiencing large gaps in the millions in their budgets.

According to a report from the National Council of State Housing Agencies (NCSHA) earlier this fall, affordable housing developments have experienced cost increases averaging 30% and even larger amounts in some cases.

The report stated that “nearly all deals that were awarded low-income housing tax credits (LIHTCs) from 2019 to the present have faced significant, unexpected cost increases after being awarded credits. As a result, many—if not most—projects have had to seek additional credits, soft funding, or other resources from housing finance agencies (HFAs) and other sources to close unexpected funding gaps.”

Developers during the Navigating Rising Construction Costs panel at AHF Live said they are being much more conservative, cautious, and selective when it comes to deals in response to the higher costs. They also are leaning on partners at all levels to get to the finish line.

“We need all hands on deck to get deals done,” moderator Brian McGeady, managing partner of Pivotal Housing Partners, told the audience.

Zenzi Reeves, senior vice president of asset management at Berkadia, agreed, saying that sharing the pain is part of the process to get deals through closing in today’s environment. She added that her firm has adjusted pricing to help deals pencil for some sponsors.

While many state HFAs have allocated additional credits or soft funding, sometimes it’s still not enough.

“It’s helpful and less negative, but still negative,” said Aaron Pechota, executive vice president and head of affordable housing at The NRP Group.

Tom Tomaszewski, president of The Annex Group, added that when states have had access to resources, they have been helpful, but that money will run out.

“We have seen success with local partners and nonprofit partners,” he noted. “Hopefully the state agencies will get some more money and can continue to help.”

He also said his firm is looking to create affordable housing in municipalities where soft financing is more readily available from local governments.

Speakers agreed that having contingency plans in place is critical for deals today.

“Even before we hit inflation, we had internal contingencies on hard costs,” said Pechota, who added that some deals aren’t just facing a $1 million gap, but $4 million. “We’re looking to create relationships with municipal and state partners to get dollars.”

Reeves also added that she is seeing developers increase their contingencies on construction and adding in a cushion.

According to McGeady, more deals are closing with significantly more deferred developer fees, adding that 80% to 90% of deferred fees is not healthy.

“You can’t go into deal that’s going to kill you,” Tomaszewski said. “Agencies have to be understanding.”

Original post: https://www.housingfinance.com/management-operations/developers-continue-to-face-increasing-costs_o?utm_source=newsletter&utm_content=Article&utm_medium=email&utm_campaign=AHF_113022&

U.S. ECONOMICS: MACRO COMMENTARY & INSIGHT

AS CONSUMER CONFIDENCE WEAKENS, ACTIVITY REMAINS RESILIENT.

• Will Christmas spending drain savings to the point of no return?
• Monthly personal savings rate drops to second-lowest on record.
• YoY credit card balances post the largest gain in 20 years.
• Estimates are that the average consumer will burn through excess savings in eight months.
• Strong Nonfarm Payrolls print hits market just ahead of Fed blackout period.

Berkadia’s analysis desk made good on their promise to contribute to boosting consumer spending this holiday shopping season, and we hope you did the same. These weeks are typically the busiest and most dollar-generating periods of the holiday season. While consumer confidence is weakening, consumer activity has remained resilient, and the combination of a better-than-expected, revised 2.9% Q3 GDP and a strong Nonfarm Payrolls print today of 263K jobs show this economy is still chugging. Consumer spending has been unwavering, as real PCE increased 0.5% in October, boosted by goods consumption, as consumers allocated a larger portion of their pocketbook towards new vehicles.

To keep up with inflation, consumers have been reliant upon their household balance sheets and elevated wages as a courtesy of a strong but ebbing labor market. JOLTS job openings declined significantly in October, showing a lightening in the availability of new positions. Offsetting this was the strong Nonfarm Payrolls number and strong gains in hourly earnings (5.1% YoY and 0.6% MoM respectively), giving credence to the “higher for longer” narrative Chair Powell has been spinning. As the Fed continues to utilize its tools to combat elevated inflation, both wages and employment will come under pressure, contributing to the weakening of household balance sheets.

Prior to the pandemic, consumers saved at a 7.7% rate, based on a two-year average, and 7.4% rate, going back to 1978. While the savings rate naturally skyrocketed in the pandemic, the surge in reopening spending has caused the index to plummet to 3.3%, with two months of data still to be released. On a monthly basis, the personal savings rate further declined to 2.3% in October, the lowest of the year and second-lowest ever recorded. The savings rate has been trending downward as consumers have been more willing to perform a “savings dip” to finance purchases. It makes sense consumers need to dip into savings, as in inflation-adjusted dollars, the average personal disposable income is less now than it was a decade ago in 2012.

PERSONAL SAVINGS RATE LEVELS SHOW PRESSURE ON CONSUMERS

Source: U.S. Bureau of Economic Analysis, Berkadia

October’s personal income and spending report also indicates a much quicker drawdown of the so-called “excess” in household savings. Excess savings, the cumulative funds individuals and households acquired in excess of what they would have saved given no pandemic, are what have been keeping consumers afloat. But not for much longer. The below chart illustrates the razor-thin line consumers have before living beyond their means. By our estimates, consumers have less than a year, about eight months, before the depletion of excess savings on which consumers are sitting is depleted and the average consumer moves into deficit spending.

According to the Household Debt and Credit quarterly report released by the Federal Reserve Bank of New York, household debt balances increased by $351 billion in Q3 2022 to $16.51 trillion, an increase of 2.2% over Q2 2022. This implies that debt balances have risen by $2.4 trillion by the close of 2019. YoY credit card balances were up 15%, the largest increase in more than two decades, en route to a $38 billion increase since Q2 2022. While the increase in credit card debt may not pose a problem at this moment given consumer savings and the current state of the U.S. labor market, the $38 billion balance will wear on household balance sheets, especially should there be upside-surprises in inflation or significant loosening in the labor market.

U.S. EXCESS SAVINGS

Source: U.S. Bureau of Economic Analysis, Berkadia

Consumers have been increasingly utilizing either excess savings or credit card debt to support their spending habits while confronting persistent and elevated inflation. While both strategies can keep households afloat in a tight labor market with strong wage growth, eventually the music will stop (Please, stop the Pentatonix Christmas Album!) and all households may not find a chair. While the music speakers still likely have a full charge, in the short term we have the Fed blackout period starting tomorrow, so look for any messaging on changes in Fed policy to be leaked through the media ahead of the December 13/14 meeting.

Sources: 

1. U.S. Census Bureau
2. U.S. Bureau of Labor Statistics
3. U.S. Bureau of Economic Analysis
4. Federal Reserve of New York: https://www.newyorkfed.org/microeconomics/hhdc

Original Post: https://berkadia.com/beyond-insights/

NAHB: Multifamily Confidence Significantly Declines in Q3

The association is forecasting a substantial decrease in multifamily starts next year.

The potential for continued high levels of multifamily development and high occupancy rates declined in the third quarter, according to the National Association of Home Builders’ (NAHB’s) Multifamily Market Survey. The Multifamily Production Index (MPI) decreased 10 points to 32 compared with the second quarter, while the Multifamily Occupancy Index (MOI) fell 15 points to 45.

The MPI measures builder and developer sentiment about conditions in the apartment and condo market on a scale of 0 to 100. According to the NAHB, the index and all of its components are scaled so that a number below 50 indicates more respondents are reporting that conditions are getting worse rather than improving.

“Multifamily developers are becoming cautious, as supply constraints have caused a large backlog of projects started but not yet completed to accumulate in the pipeline,” said NAHB chief economist Rob Dietz. “An emerging additional constraint is financing for new multifamily development, which 79% of developers say is somewhat or significantly less available than it was a year ago. NAHB is projecting a significant decline in multifamily starts in 2023.”

The MPI is a weighted average of three key multifamily market elements: construction of low-rent units—apartments that are supported by low-income housing tax credits (LIHTCs) or other government subsidized programs; market-rate rental units; and for-sale units—condos. All three components saw decreases from the second quarter, with the component measuring low-rent units falling nine points to 36, the component measuring market-rate units dropping 13 points to 39, and the component measuring for-sale units declining 10 points to 23.

The MOI’s 15-point decrease from the second quarter means it’s at the lowest level since the first quarter of 2010, with the exception of the start of the pandemic in spring 2020. The MOI measures the multifamily industry’s perception of occupancies in existing apartments. It is a weighted average of current occupancy indexes for Class A, B, and C units and can vary from 0 to 100, with a break-even point at 50, where higher numbers indicate increased occupancy.

“Although demand for multifamily housing remains strong in many parts of the country, some multifamily developers are starting to see signs of a slowdown,” said Sean Kelly, NAHB Multifamily Council chairman and executive vice president of LNWA, based in in Wilmington, Delaware. “The ongoing problems of scarcity and high cost of land and materials is making it difficult to go forward with certain projects, particularly affordable housing projects.”

Original article: https://www.housingfinance.com/news/nahb-multifamily-confidence-significantly-declines-in-q3_s?utm_source=newsletter&utm_content=Article&utm_medium=email&utm_campaign=AHF_113022&