Bellwether

The U.S. Trade Deficit Feedback Loop

sng — Mon, 16 Jun 2025 21:20:48 +0000

In our latest Chart for Thought, we explore an underappreciated mechanism: how trade imbalances may actually fuel U.S. financial markets. Drawing from data since 2008, we examine a surprisingly strong correlation between the U.S. trade deficit and the S&P 500.

Key Takeaways:

Capital Feedback Loop: A growing U.S. trade deficit exports U.S. dollars globally — many of which are recycled back into U.S. financial markets via equities, bonds, alternatives, and other assets.
Liquidity Engine: The U.S. dollar’s reserve status and the attractiveness of U.S. markets make this loop sticky — further reinforced by the post-2008 world of QE, globalization, and U.S. economic outperformance.
Empirical Link: Since 2008, the year-over-year percentage change in the U.S. trade deficit and the S&P 500 show a strong positive correlation.
Policy Implications: Efforts to reduce the trade deficit (e.g., reshoring, tariffs, etc.) may create headwinds unless offset by other economic levers.
Looking Ahead: Investors and policymakers should pay close attention to how structural trade dynamics influence cross-border capital flows, U.S. financial market performance, and policy trade-offs in the years ahead.

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Multifamily Rent Growth

sng — Fri, 31 Jan 2025 02:07:13 +0000

Between the end of 2020 and 2021, the multifamily market experienced widespread rent growth that rocketed well above the average annual growth rate. Many markets had annual rent growth in the double digits compared to the 2010-2020 average of 2.3%.
Over the course of 2021, the highest growth regions were in the “sunshine” states across the southern United States. Markets with the strongest year-over-year rent growth, like Las Vegas, Tampa and Orlando, typified the trend with strong in-migration generating high levels of demand for housing.
Since then, annual rent growth has reverted towards the mean. Many of the high-growth markets began to see accelerated supply growth that reduced pricing pressure. The top three growth markets in 2021 had new deliveries averaging 4.5% of their total inventory in 2024, whereas the bottom three growth markets in 2021 had new deliveries averaging 2.3% of their inventory in 2024.
Today, many of the markets that experienced slower rent growth between 2020 and 2021 are seeing stronger rent growth than the previous high-growth markets from four years ago. Detroit, Kansas City, and Cleveland (which ranked 31st, 37th, and 39th in rent growth in 2021) led annual rent growth at approximately 3.0% in 2024 as they caught up to nationwide increases that reset average rents higher. Alternatively, rent growth leaders in 2021, like Las Vegas and Orlando, experienced negative rent growth in 2024 as supply growth outpaced demand in those markets.
However, the recent surge in construction that occurred in many high-growth markets is already easing. Many of the projects under construction have already delivered and are being absorbed by the market. Additionally, new multifamily construction starts have dropped significantly in 2024, which has caused the supply pipeline to shrink considerably in most markets.
The shocks of 2020 are still making their way through the system. Supply and demand continue to rebalance to an equilibrium, that will likely result in a regression to a long-term national average rental growth rate between 2% and 3%.

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Elections Vs Transaction Volumes

sng — Mon, 04 Nov 2024 21:58:12 +0000

Elections are major events that continually occur throughout the world. In the U.S., the presidential election is the most significant and occurs every four years. While these political events can create uncertainty about the country’s future, their impact on transaction activity for commercial real estate is less clear.
Combined quarterly transaction volume for office, multifamily, and industrial assets since 2000 shows no consistent pattern during election years. Some election years saw positive changes in transaction volume, while others experienced negative changes.
Statistical testing reveals no significant correlation between election years and the volume of real estate transactions. This suggests that the U.S. election cycle is not a reliable predictor of commercial real estate transactions.
- We also checked correlations post-election and based on whether the winner was a republican or democrat. None showed a significant relationship.
Instead, commercial real estate transactions are primarily driven by market dynamics such as:
- Interest rates: Lower interest rates lead to a lower cost of capital and generally greater availability of capital for real estate transactions
- Economic growth: Economic growth generates greater demand from the users of real estate
- Investor sentiment: Positive sentiment can lead to more optimistic valuations and increased confidence when transacting
- Real estate fundamentals: Strong fundamentals like rent growth, high occupancy, and net operating income growth can improve current and potential real estate returns and attract capital flows from investors
In conclusion, these factors have exhibited a more direct and measurable impact on transaction volumes throughout history compared to election cycles.

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Mortgage Vs Treasury Spread

sng — Wed, 11 Sep 2024 20:31:12 +0000

At the start of August 2024, the average 30-year fixed mortgage rate stood at 6.73% according to Freddie Mac. At the same time, the 10-year U.S. Treasury had a market yield of 3.99%.
The 274-basis point spread between the two was nearly 100 basis points above the 50-year average spread of 178 basis points and approximately 75 basis points above the 10-year average spread of 198 basis points.
The elevated spread indicated an assessment by market participants of uncertainty in the U.S. mortgage market. The 10-year Treasury rate is commonly referred to as the risk-free rate, and spreads between market yields and the 10-year Treasury are a gauge of risk within market offerings. In the past, spreads on mortgages have risen above the average at times of economic recessions.
The causes of the expanded spread today are multi-faceted and include, but are not limited to, rate volatility which is creating term risk, and a perceived increase in the risk of default based on current affordability and inflation pressures.
If the spread returned to its 50-year average, then the 30-year fixed mortgage rate would be 5.77%, whereby the monthly payments on a median-priced home purchase would be 10% lower (a reduction of $232/mo), all else equal. Today the market is also projecting roughly 100 basis points of cuts to the federal funds rate by the end of the year, which could lower the 10-year Treasury yield and the 30-year mortgage rate, especially if rate cuts occur faster than market expectations. Reductions in the 30-year mortgage rate would benefit homebuyers by improving affordability and potentially releasing more inventory into the market.

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The U.S. Housing Shortage

sng — Tue, 11 Jun 2024 17:21:29 +0000

The 25-year-old+ population, which is typically the starting age of new household formation, grew by 13.5%. Meanwhile, housing stock, which includes multi-family and single-family units, only grew 10.8%.
The addition of new adults to the U.S. economy could put greater pressure on a housing stock that Fannie Mae already estimated is undersupplied by 3.8 million units in 2019[i].
While there were 1.4 million housing starts at the end of 2023[ii], this does not account for obsolete homes being removed from the housing stock and will do little to alleviate this U.S. housing shortage. Additionally, signs point to fewer housing starts across the U.S. over the next two years, as an increase in construction costs have limited developer and homebuilder activity.
In the medium term, the dearth of new housing supply and the presence of strong demand is likely to maintain pressure on affordability for both renters and buyers.

[i] Fannie Mae, U.S.Housing Shortage: Everything, Everywhere, All at Once, October 31, 2022

[ii] John Burns Real Estate Consulting

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Shelter CPI Analyzed

sng — Fri, 10 May 2024 17:03:14 +0000

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Adaptive Reuse: Office-to-Multifamily Conversion Challenges

sng — Fri, 12 Jan 2024 01:49:51 +0000

Uncertainty surrounding return-to-office following the pandemic negatively impacted office occupancy and increased vacancies. There could be a surplus of 330 million square feet of empty office space that will not keep pace with modern use and trends by the end of this decade.[1] Concurrently, the U.S. faces its own housing shortage. Freddie Mac estimates the U.S. is short about 3.8 million units of housing.[2]
In 2022, 10,090 apartment units were converted from alternative building types. Office-to-multifamily conversions led the list with 34%, followed by hotels at 29%.[3] Adaptive reuse, or repurposing of an existing building for new use, can be an option for these empty office properties. However, there are hurdles to acknowledge that make these type of conversions quite challenging:
- Building Configuration – not every office building is a good candidate for conversion. The building’s core layout should have good access to light and ventilation, with open, shallow floor plates. These are often attributes of older, smaller buildings that were built prior to 1980. When considering conversion candidates in U.S. metros with the most vacant downtown office buildings, the results are also scarce with only 1.1% of total office space on the market qualifying.[4]
- Time to Convert – the conversion process is lengthy and cumbersome. Generally, local zoning codes prohibit residential uses in commercially zoned areas. Proper permitting and entitlement can take 2 to 5 years (varies by jurisdiction). And if approved, another factor to consider is that redevelopment on the building can take between 8 to 16 months[1] to complete, further adding to the project timeline.
- Costs – the costs of conversion are expensive. The scope of work is estimated to cost between $100 to $500 plus per square foot.[4] Furthermore, investors and developers face financing constraints today. The pullback of traditional lending sources has limited the ability for borrowers to obtain financing, while the rise in interest rates substantially increased cost of capital associated with redevelopment. Daniel Fine, senior vice president at Bellwether also remarked, “An investor typically underwrites a specific business plan at acquisition, inclusive of all tenant-related costs. It’s challenging to pivot midway through a hold period especially if long-term office leases are signed which can result in expensive lease buyouts, further escalating conversion costs.”

Lastly, when observing market rents per square foot for office and multifamily in 2022, the difference between the two was too wide to warrant conversion; except when possibly converting class “C” office to class “A” multifamily. “In certain markets where office demand has dried up, class “A” office buildings could pencil into multifamily given the compelling basis of vacant office buildings,” added Carolyn Leslie, managing director at Bellwether.

[1] Cushman & Wakefield. Converting Offices to Housing: What You Need to Know. Helminski, Gary. 2023.

[2] Freddie Mac. Housing Supply: A Growing Deficit. May 2021.

[3] RentCafé. Apartments From Adaptive Reuse Projects to Exceed 120,000 in Upcoming Years, Despite Recent Slowdown in Office Conversions. Neculae, Andrea. July 2023.

[4] CBRE. The Rise and Fall of Office to Multifamily Conversions: A Real Estate Investigation. March 2023.

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Leveraging AI in Manufacturing: Predictive Maintenance for Enhanced Efficiency in SMBs

Madeline Mayerson — Fri, 08 Dec 2023 17:57:18 +0000

The Fourth Industrial Revolution, or as it has come to be known as Industry 4.0, has presented Small and Medium-sized Businesses (SMBs) with unprecedented opportunities to optimize productivity through robotics and automation. The notion that such advancements were reserved for big players in the industry is fading, as a shift towards simplicity and affordability enables SMBs to benefit from new technologies and methodologies. Ensuring peak performance, however, necessitates streamlined, repeatable maintenance strategies. When appropriately strategized and executed, robotics and automation can act as potent catalysts, propelling businesses towards rapid growth and enhanced profitability.

Recognizing the Value of Predictive Maintenance Algorithms

Predictive maintenance algorithms present invaluable insights into equipment failures, even within the SMB context. Drawing from diverse data sources, these algorithms construct predictive models, affording actionable intelligence on a robot’s condition. Bellwether research indicates predictive maintenance can generate up to 20% cost savings¹ and curtail downtime by a substantial 60% for SMBs¹.

Customizing AI for Streamlined Predictive Analytics

AI-driven predictive analytics, now accessible to SMBs, promises transformative maintenance efficiency. Tailored AI solutions, aptly calibrated for precise data analysis, empower SMBs to achieve accuracy levels of 90%¹ in predicting equipment failures, surpassing conventional methodologies.

Simplified Integration for Informed Decision-Making

SMBs can seamlessly integrate AI to analyze wear and consumption of robot components, leading to judicious maintenance practices. Evidential cases have exhibited up to 25%¹ reduction in component replacements, yielding noteworthy cost efficiencies.

Enabling Proactive Measures through User-Friendly Insights

AI-based predictive analytics efficiently discerns trends signifying imminent component failures, enabling swift and proactive action. This strategic approach culminates in a 30%¹ decrease in unscheduled maintenance events and a 25%¹ reduction in critical equipment failures for SMBs.

Practical Steps for SMBs to Incorporate AI into their Manufacturing Process:

Data Curation: Strategically select pertinent data points germane to equipment and manufacturing processes, facilitating seamless AI integration.
Tailored Solutions: Engage with AI vendors offering cost-effective solutions tailored to SMBs, encompassing user-friendly features for easy implementation and management.
Customized AI Models: Collaborate with AI specialists to adapt existing models, aligning them with SMBs’ unique manufacturing prerequisites.
Expert Implementation Support: Enlist vendor assistance or specialized consulting services for seamless AI model deployment and sustained operational excellence.
Intuitive Interfaces: Opt for AI solutions equipped with intuitive interfaces, rendering data visualization and user-friendly insights.
Knowledge Transfer: Equip maintenance staff with foundational training to empower informed actions based on AI-generated insights.
Scalability Considerations: Initiate with a pilot project, assimilating data-driven results, and subsequently scale up AI implementation to optimize resource allocation.

The prudent integration of AI-driven predictive maintenance empowers SMBs to harness enhanced efficiency and productivity within their manufacturing processes. Embracing this strategic journey, SMBs can unlock the rewards of Industry 4.0, while cultivating a data-driven approach to seamless production and optimized operations. Contact our industrials practice to learn more about how to unlock value using AI.

1. Bellwether; market research

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Industrial Rent Growth Across Top 50 U.S. Markets

sng — Thu, 30 Nov 2023 19:49:24 +0000

The average annual rent growth over the past 12 months in the top 50 U.S markets for industrial was 7.7%, with only one of the top 50 markets posting a negative annual rent growth rate in the third quarter of 2023. Following the industrial sector’s unprecedented rent growth in 2021 and 2022, the ongoing rent growth across the country is noteworthy, particularly in a landscape where many sectors of commercial real estate are facing challenges.
The continued rent growth is supported by the growth of e-commerce and the associated expansion and transformation of supply chains and distribution networks. Demand for industrial real estate is also supported by increased port volume over the past decade, as well as the U.S. government’s push to revitalize the country’s manufacturing sector through investment and incentives. The U.S. government has already invested over $500 billion since 2020 in manufacturing and clean energy initiatives, increasing manufacturing reshoring and employment, as well as demand for industrial space.
Despite the sector’s strong fundamentals, rental rate growth has moderated from 2022 highs as supply and demand gained more balance.
Chantalle Rochel, Vice President of Equity at Bellwether, noted that “global technology evolutions continue to prove the resilience of industrial demand through even the most challenging real estate cycles. Despite moderate net absorption totals this year, market rents continue to remain above pre-pandemic levels. While the macroeconomic outlook has put pressure on capital markets, and short-term concerns around supply/demand dynamics have surfaced, it should not deter the future growth of industrial real estate.”

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Sublease vs. Direct Office Leases

sng — Tue, 17 Oct 2023 16:48:16 +0000

Sublease space may pose less of a risk to class “A” market rents than initially anticipated
The rise of remote work caused tenants to reconsider their office footprints, and some tenants made the decision to list a portion, or all, of their existing space for sublease
Since the onset of the COVID-19 pandemic, the amount of class “A” sublease space on the market rose from 2.0% of total inventory to 4.7% of total inventory, more than doubling on a square footage basis
As more class “A” sublease space became available at discounted rates, owners of office assets worried that the competing sublease product would siphon tenant demand away from their higher priced direct listings
However, asking rates of direct listings remained static in recent quarters, even as sublease availability increased materially. On the other hand, an increase in sublease space for lease has correlated with a decrease in sublease rental rates
The limited impact on the pricing of direct rents could be because tenants leasing at class “A” buildings are seeking bespoke space that caters to their needs. Limited demand for office space has also placed tenants in a position of power when negotiating with landlords, so they are likely to get favorable concessions including high-end buildouts and other perks when negotiating leases
Carolyn Leslie, of Bellwether, noted that “there may be additional factors that explain the limited impact. On top of class “A” tenants’ need for bespoke office space, subleases are generally larger than what is in demand, remaining term is short, and some sublessors that have listed space might not be motivated to transact on it.”

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