The Fed’s Looming Rate Cuts

Zachary Urow December 19, 2023

Fed Recap

The Federal Reserve decided to pause on increasing rates on December 13th, 2023 and to keep them between 5.25% to 5.50%. While the fight against inflation persists, the Fed anticipates initiating three rate cuts from March 2024. This marks a reduction from the earlier projection of six, set to commence in May 2024. Despite these measures, the likelihood of a mild recession in 2024 remains significant.

Fed’s Next Steps

Following the 2024 rate cuts, we anticipate four more reductions in 2025 and three in 2026. These anticipated rate decreases will accelerate transaction volume, potentially leading to increased property values in certain metropolitan statistical areas. However, it’s crucial to monitor operating fundamentals to ensure they don’t decline due to factors like new storage construction impacting rental rates and occupancy.

Storage Operating Fundamentals

The national average street rates per square foot decreased 4.2% since October 2022 to $16.77. Since then, climate controlled street rates decreased 4.2% and non-climate units decreased 4.1%. We anticipate the negative trend to continue as new storage supply, consisting of 3.8% of the existing NRSF in the country, is delivered over the next two years. The tight housing market has contributed to the trend as well. Please contact Urow Real Estate if you have any questions about the market or whether any of this new supply will affect your submarkets’ operating fundamentals.

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