September 12th, 2024 - Volume 10 (2024), Missive 208 (Thursday)
Retail gross rents overtaken by price volatility
All stages of intermediate demand prices weak
Demand for Treasuries remains high even as volatility ramps, 10yr yield eventually negative.
One of the clearest examples to date of the increasing nature of price volatility happens to come out of the Producer Price Index; which just so happens to have been released this morning by the Bureau of Labor Statistics. Among all the other wholesale goods and service prices it tracks on a monthly basis, we like to highlight one in particular: the monthly change in the price of retail properties, gross rents. This is a fascinating, albeit rather esoteric component of the report which doesn’t really get the attention it deserves. Tracking the monthly change in retail rents is actually much easier to do then than of residential rents due to their high viability and relative ease of acceptance. After all, retail rent is an expense that gets passed down onto the consumer through the form of final price As a result, businesses are apt to accept moderate changes over time. (This is not necessarily the case with residential renters who are much more likely to move if rent gets too high too soon.) Because of this, retail rent prices don’t change all that much as businesses provide stable income to owners of the properties. That has changed, however, at the onset of the increase of price volatility, before the pandemic not due to it.
The average monthly change has doubled since 2017 for retail gross rents but what is considered an average monthly move has absolutely exploded.
Prior to 2018, the average monthly change in the producer price of gross retail rents used to come in around 0.12 percent. Of course, some variation was always present with that average, in this case to the tune of 0.53 percent per month. That is to say, a monthly change of +0.66 percent or -0.41 percent was considered normal. Compare and contrast that with today’s range and you really get a sense for just how severe the increase in price volatility has become. Since January of 2018, the average monthly price change in retail gross rents has doubled from 0.12 percent to 0.24 percent, but that’s not the real insight. The true economic significance is the fact that
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