Good morning. A roller-coaster quarter looks set to end with a whimper rather than a bang, with signs of stress growing in the commercial property market.

Meanwhile, NRF forecasts retail sales to grow 4-6% in 2023, lower than the 2022 forecast of 6-8%, but still positive amid economic concerns.

Challenges Ahead, But Retail Sales Expected to Grow 4% or More in 2023

The National Retail Federation is confident in the American consumer's ability to withstand inflation and economic uncertainty, predicting a 4% to 6% growth in retail sales, bringing their latest forecast estimates of total sales to $5.13—$5.23 trillion by the end of 2023.

Meeting of minds: The announcement happened during the State of Retail & the Consumer virtual conversation, a gathering of major brand executives, economists, and consumer experts who gathered to discuss the state of the retail industry. While their 2023 forecast falls short of 2022’s 7% annual growth ($4.9T), it’s still well above the pre-pandemic average annual retail sales growth rate of 3.6%.

Brick-and-mortar: Sales for non-store and online are expected to grow 10–12% YoY to $1.41–1.43T. Even though consumers still shop online, much of the growth is fueled by multichannel sales, where brick-and-mortar retail plays an important role in fulfillment. Physical stores remain the primary point of purchase for consumers, accounting for 70% of total retail sales.

GDP gains: The report projects full-year GDP growth nearing 1%, less than half of the 2.1% gain seen last year. While inflation is declining, it will likely remain between 3–3.5% for goods and services throughout 2023. The NRF also anticipates slower job growth amidst the ongoing economic slowdown. The unemployment rate could pass 4% before 2024.

➥ THE TAKEAWAY

Big picture: The NRF's projections come with caveats, as noted by a panel of economists at a recent event. The labor market appears to be cooling, and individuals are increasingly relying on credit to keep up with inflation, leading economists to express concern about potential consumer defaults on debt.

Despite this, NRF's Chief Economist, Jack Kleinhenz, remains optimistic about consumer spending for the first quarter of 2023, while acknowledging that it is still too early to fully assess the impact of banking industry turmoil.

📖 Read how limited partners, including high-net-worth investors, are participating in deals to attract equity for full-service hotels in vacation destinations.

🖥️ Watch the latest Paydirt episode where TRD's Hiten Samtani delves into the recent events surrounding the iconic Flatiron Building, including Jacob Garlick's failed attempt to secure the property with a $19 million deposit.

🎧 Listen to this episode of the TreppWire Podcast, in which Warren de Haan, managing director and co-CEO of ACORE Capital, talks through the current lending environment and potential credit crisis.

• Now on prime: Jeff Bezos has reportedly sent his investment advisors and top entertainment chiefs to investigate potential acquisition plans for AMC Entertainment, the embattled theater chain.

• Flatiron fiasco: The deadlock over NYC’s Flatiron Building and the resulting auction has exposed the inadequacies of the outdated tenancy-in-common form of ownership.

• Monetary policy: Higher interest rates were expected to benefit banks by increasing the profit margin between borrowing and funding. However, recent crises have revealed that the situation is more complicated than originally thought.

• Changing plans: Though David Martin has offered $500M for a Miami Beach condo building, changes in real estate and financial markets could affect his plans.

• There goes the neighborhood: NY governor Kathy Hochul’s ambitions to create more housing in NYC’s suburbs are—unsurprisingly—meeting resistance in local communities.

• Deal-making cools: Compensation in the financial sector took a hit last year as a decline in dealmaking and cost-cutting measures by banks led to a 26% decrease in the average Wall Street bonus.

• Ominous office loans: Which markets will be most affected by the upcoming wave of maturing office loans? Find out which 5 markets have the highest number of office loans set to mature this year.

• Slowing tide: The pandemic-era exodus from major coastal cities has begun to slow as suburbs and smaller metro areas saw the most growth in 2022.

• Shrinking supply: New listings for houses dropped 22% since last March, stifling sales even as the slight decline in mortgage rates tempts buyers.

• Major error: After Clayton County, GA, provided a novice developer $550K for an $800M mixed-use project, a record review revealed the developer lied about securing $100M in funding.

• Brave office space: Tech giant Google (GOOGL) is moving ahead with commitments for large office leases in Austin (800 KSF) and Los Angeles (584 KSF).

• Market rebound: On Thursday, the S&P 500 increased to a 3-week high as investors bet the banking crisis has stabilized. Nasdaq Composite gained 0.7% with renewed interest in tech stocks.

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The commercial property market is experiencing growing stress, with commercial mortgage-backed securities (CMBS) prices dropping as investors view them as riskier. This has caused CMBS yields to rise, resulting in wider spreads between them and U.S. government bonds, indicating declining trading activity and a slowing flow of capital through the economy.

This development suggests that the commercial property market is facing increased risks of a credit crunch, which could lead to an economic downturn.