As markets seemed to be nearing stabilization, the first quarter marked a pivotal juncture for U.S. commercial real estate. Short-term uncertainties were introduced, percolating from tariffs and trade policies, which played a pivotal role in Q1's GDP contraction and declining market sentiment. While these conditions persist, CRE's long-term forecast remains robust. According to Kroll Bond Rating Agency ("KBRA"), new CMBS issuance reached a post-global financial crisis high and CMBS delinquency rates declined 14 basis points (bps) quarter over quarter, signaling improved investment dynamics. These near-term pressures and structural shifts support an optimistic forecast for Fractal RE's asset appreciation.
Experiencing its first decline since 2022, the GPD contracted 0.3%. Owed largely to diminishing global trade relations resulting in imports soaring as companies increased orders mitigating exposure to future price increases. These uncertainties have led Oxford Economics to revise their forecasts, now signaling slower economic growth in 2025 and increased inflation. Tangibly, the effects of which were reflected in the Personal Consumption Expenditures ("PCE") 3.6% year over year increase. In response, the Federal Reserve held rates steady attempting to
balance inflationary control with economic stability. Intangibly, market sentiment continues to wane, the National Federation of Independent Business Survey of Small Business reports its Optimism Index falling 3.3 points in March. The largest monthly decline since June 2022. Fractal RE's core lineup of tenants consists primarily of service retailers, hedging exposure to looming supply constraints while inversely improving extrinsic value.
Overshadowed by the unpredictable regulatory landscape, core retail sales grew 1.2% year over year, and manufacturing output reached its highest level since December of 2018, increasing 0.3% in March. Retail's resilient run continued as leasing activity remained healthy, vacancies at near 10-year lows and rent growth rose 3.5% year over year. Spurring these accelerations is a healthy capital market, evidenced by the post-global financial crisis high of ~$17 billion new issuance in Q1, and the sharp decline of CMBS delinquencies to 5.5%. It would be futile not to recognize the effects of these uncertainties are not fully reflected in the most recent quarterly reports. In this environment, consumers and businesses become more cautious, opting to increase savings by spending less triggering slowdowns. However, our competitive positioning underpinned by strategically located assets and enduring cashflows enables us to weather these choppy waters.
Historically, private real estate has a long track record of delivering uncorrelated returns. Since 1980, there have been eight years when S&P 500 returns were negative, yet private real estate delivered positive returns in seven of those years. Against this backdrop, our core conviction remains absolute, expecting substantial capital flows into private real estate indicating a multiyear period of intensifying valuations.