• Restrained discretionary spendinglikely induced by increased payroll taxes generated weaker thanexpected retail sales performance in March; a sharp drop off fromthe solid numbers posted in the prior two months. However, thecoinciding downshift in the labor market and decelerating incomegrowth lent little foundational support for consumption. Thediscretionary sectors most adversely affected in March includedauto sales and department stores, while housing-related sectors,such as furniture stores and building materials reported increasedsales, likely due to strong gains in housing.

  • March retail and food sales totaled$418.3 billion, representing a -0.4% decrease from February, butstill 2.8% above year-ago levels. Core retail sales, excludingautos and gasoline, flattened to -0.1 percent, and remain 2.4%higher on an annualized basis. Gasoline stations, electronics andappliance stores, department stores and motor vehicles reported themost significant monthly declines, ranging between -2.2 and -1.6%for gasoline and electronics, respectively, to -1.1% and -0.5% fordepartment stores and autos, respectively. Non-store retailers andmotor vehicles maintain the strongest annualized gains acrosscategories, posting 13.5% and 7.4%, respectively. Conversely,department stores and electronics and appliance stores report thelargest decline in revenues on an annualized basis of -7.6 and-3.2%, respectively.

  • Sequestration, higher taxes, anoverriding theme of slower demand, and noisy threats from NorthKorea joined in re-igniting the familiar drumbeat of economic andgeo-political uncertainty. However, rising residential constructionand home sales, which are critical to the health of the consumersector and overall economy, supported economic resilience to thepersistent headwinds. The Conference Board's index of leadingindicators continues to reflect widespread improvement,notwithstanding weakness in consumer expectations and manufacturingnew orders.

Impact on Commercial Real Estate

  • The deceleration in industrialproduction and other economic factors that influence demand forindustrial properties present heightened risks for the sector'snear-term performance. Thus far, however, distribution, warehouseand manufacturing space exhibit impressive leasing and rent growthmomentum, aided by low levels of supply. Vacancy is forecast totighten by 80 basis points to 8.6% by year end. The long-runstrength of e-commerce could contribute significant demand forcentrally located distribution and warehouse facilities goingforward.

  • Demand for retail space remainslimited, but has managed to outpace the dearth of new supply,expected to total 55 million square feet by year end. A key factorthat will support brick and mortar retail in the coming year is thepassage of the Marketplace Fairness Act, which compels states totax online retailers at a rate comparable to other retailers. Thischange will level the playing field by eliminating the 5 to 10%pricing advantage long held by online stores. Forward projectionscall for a further decline in vacancy to 8.6% by year end andeffective rent growth by year end of 2.1%.

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Hessam Nadji

Hessam Nadji is president and chief executive officer of Marcus & Millichap, a leading commercial real estate firm specializing in investment sales, financing, research and advisory services. Founded in 1971, Marcus & Millichap has grown to more than 1,700 investment sales and financing professionals with offices throughout the United States and Canada. In 2016, the firm completed 8,995 transactions with a sales volume of over $42 billion. Mr. Nadji joined Marcus & Millichap in 1996 as vice president of research and advisory services and positioned the firm as a leading provider of market trends, analyses and expertise. Over the years, his role expanded to include marketing and strategy, enabling him to play a key role in establishing and growing Marcus & Millichap’s national brand. In 2010, Mr. Nadji assumed the leadership role for all of the firm’s national specialty brokerage divisions, which grew rapidly under his supervision. Marcus & Millichap’s specialty divisions function as client service teams of specialists with in-depth expertise in 12 real estate segments and achieved sales of $21.5 billion in 2015. Mr. Nadji also played a leading role in the preparation and execution of the firm’s IPO in 2013 as Marcus & Millichap’s chief strategy officer. He was named president and CEO in April 2016. Mr. Nadji is frequently sourced on behalf of the firm by national business media outlets, including The Wall Street Journal, Investor’s Business Daily, Real Estate Forum, CNBC, Fox Business TV, Bloomberg TV, and numerous commercial real estate publications. Prior to joining Marcus & Millichap, Mr. Nadji was senior vice president at Grubb & Ellis, where he began his career in 1986. He received a Bachelor of Science degree in information management and computer science from City University in Seattle. Mr. Nadji is a member of the National Multi Housing Council executive committee, the Urban Land Institute, the International Council of Shopping Centers and NAIOP.