👋 Hey strip center owners.

Hope your weekend is off to a good start. I'll get right to the number from this week that stuck with me. In August, real consumer spending rose 0.6%, but real disposable income was flat. The difference came out of savings, and the saving rate slid to 4.1%, according to the BEA's August report.

In the same week, the Conference Board said consumer confidence fell to 81.9, its lowest level since 2014. People feel worse and are still spending. That gap doesn't last forever, so it's worth knowing which of your tenants sit on which side of it.

Nominal spending rose 0.9% in August and real spending rose 0.6%, while real disposable income was unchanged. Headline PCE inflation was 3.4% year over year and core was 3.0%. One caution: this release includes annual revisions going back to 2021, so comparing it to figures you saw last month isn't apples to apples. For example, July's saving rate was revised to 4.6%, which makes August's 4.1% a half-point slide. Some outlets still compare August to a pre-revision July figure, and I'd ignore those.

The plain-English version is that households spent more than they earned in real terms and covered the gap from savings. For a landlord, August sales may look healthy, and the question is what's paying for them.

CRE Takeaway: Strong tenant sales funded by a shrinking cushion are worth less than strong sales funded by income. When you review sales reports, ask what is driving them, and be a little slower to extrapolate a good quarter into next year's rent.

The Conference Board's expectations component fell to 63.6, and 68.4% of households now expect higher interest rates over the next 12 months. Then came Friday's jobs report. September payrolls rose just 29,000 against roughly 85,000 to 90,000 expected, and unemployment ticked up to 4.2%. Revisions took 60,000 jobs out of July and August combined. Retail trade added about 5,800 jobs and leisure and hospitality added about 10,000, per the Labor Department release.

Put those together: households are anxious, hiring is cooling and the cushion is thinning. That isn't a recession call. It's a reason to know which tenants live on the discretionary dollar and which live on the necessity dollar.

CRE Takeaway: Sort your rent roll by what the customer is buying: need, want or stretch. Grocery, pharmacy, dollar and daily-needs services sit in one bucket. Apparel, restaurants and big-ticket discretionary sit in another. Know your exposure before your tenants tell you.

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On September 29, New York Fed President Williams said there was "no need for urgency" after the Fed's September move, while keeping another hike on the table. Futures cut the odds of an October 28 hike to 47% from 71% on Monday. That was before Friday's jobs report, and I haven't seen post-report pricing, so check CME FedWatch Monday morning.

Here's what surprised people. The Fed backed off, and the 10-year Treasury didn't follow. It rose above 5.2% on September 28, its highest since mid-2007, and the latest quote I found was about 5.28%. The long end is telling you something the short end isn't.

This matters because most commercial loans price off the 10-year, not the Fed. Prime is a parallel track for floating-rate borrowers, and it won't move before October 28 at the earliest. It matters for SBA 7(a) loans, which are how many owner-users buy small centers, so prime shifts can change the size of your buyer pool. On larger bank paper, SOFR is part of the conversation too.

Illustrative only, not a rate quote:

Same property, half a point of rate, a noticeably thinner cushion. Your lender sets your actual terms.

CRE Takeaway: Watch the 10-year, not the headlines about Fed odds. If you're refinancing or buying in the next 12 months, run your numbers at two spread assumptions and underwrite to a coverage ratio you can live with if rates stay here.

The Dallas Fed's September service sector survey, released September 29, showed the revenue index at -0.9, down from 6.6 in August. The input-price index rose to 42.1, its highest since December 2022. One real estate respondent said interest rates remain "far too high," and a food-service executive noted people are spending less on fast food than over the summer. It's a small sample, so treat it as a signal, not a verdict.

At the pump, AAA had the national average at $4.41 on October 1 after a record-setting September, with Texas at $3.94, the second-cheapest state in the nation. I mention fuel only because it shapes what's left in family budgets to spend inside your centers.

Ray's CRE Takeaway: Texas has a fuel advantage, but operators are being squeezed from the cost side. Talk to restaurant and service tenants about margins before the renewal conversation, not during it.

Consumers are spending from savings while feeling worse, and long-term rates aren't helping. Neither is a reason to panic. Both are reasons to know your rent roll by category and to run your numbers at today's rates.

If you own a strip center in San Antonio, Austin or the Rio Grande Valley and want a second set of eyes on your tenant mix or your debt, just hit reply. No pitch, just a conversation.