Amid ongoing trade disputes between the U.S. and China and slowing growth throughout the European economy, the global economic outlook has begun to wane. Financial market volatility, combined with elevated caution, has sponsored a flight to the safety of Treasurys, pushing the 10-year yield into the 2.5 percent range. As a result, the Fed has decided to cease its balance sheet reduction through quantitative tightening by September and weakened the potential for rate hikes through the remainder of the year. The bond market has priced in a more moderate Fed policy, with flattening interest rates reflecting increased caution. Fed officials will likely focus on the intersection of a global economic slowdown and resurgent domestic growth to spell out their plans moving forward.
Volatility in the broader market and some uncertainty surrounding the evolving nature of the retail sector have begun to seep into the underwriting environment, prompting lenders to be more conservative than in previous years. Construction during this cycle has been consequently limited, averaging roughly three times less than the previous cycle at 50 million square feet annually as developers remain wary of overbuilding. While lenders have exhibited more caution, there is still plenty of capital available for the right deal; however, developers and investors now must do more searching.