Consumer Debt across all categories totaled a record $16.9 trillion, up roughly 8.3% from a year ago. What does this mean for Commercial Real Estate Investors?
“Although historically low unemployment has kept consumers’ financial footing generally strong, stubbornly high prices and climbing interest rates may be testing some borrowers’ ability to repay their debts.”
Where has borrowing increased?
“Credit card balances grew robustly in the fourth quarter, while mortgage and auto loan balances grew at a more moderate pace.”
Consumers are using credit cards to fuel purchases. Are they paying back their debts on time?
“Mortgage loans considered in “serious delinquency” of 90 days or more rose to a rate of 0.57%, still low but nearly double where they were from the year prior. Auto loan debt delinquencies rose 0.6 percentage point to 2.2%, while credit card debt jumped 0.8 percentage point to 4%”
You can assess raw data in two ways, in aggregate or as a trend. The overall rates are low, but the trend is not positive.
Rising consumer debt can have a disproportionately negative impact on luxury or higher end goods. Higher debt balances at higher interest rates reduce consumer buying power and refocuses their spending.
As a retail landlord, would you rather have a Sephora or a Dollar General? Are you willing to build out an expensive, cool, and trendy locally sourced small batch coffee tenant willing to pay a higher rent or an easy, boring insurance company willing to accept minor improvements for a lower rent?
Tenant selection and lease maturity are integral parts of a long-term CRE portfolio debt plan. Do you have a debt plan?
Contributed by Kyle Nagy, President
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