It’s no secret that the commercial real estate market has been struggling for a while now. However, muni bond fundamentals remain strong.
Ever since hybrid and remote schedules became more popular work practices, commercial real estate has struggled. According to a Q2 2024 report from Moody’s,. the office sector vacancy rate sits at 20.1%. Moody’s adds that this is the first time in history that the office sector vacancy rate surpassed 20%.
While some investors may worry about how office vacancies could affect municipal bonds, experts say there is no need to be concerned. In recent insights, the Eaton Vance team notes that the major cities have “significant time to address the potential budget shortfalls”, adding that cities have plenty of options to rebalance their budgets.
“While depressed assessed values of office buildings may have an adverse effect on certain municipal budgets, we are not overwhelmingly concerned about the underlying credit health of these cities, Eaton Vance added. “In our view, the recent influx of headlines regarding depressed office building values are significantly more impactful to private owners and developers, rather than municipalities.”
While cities build on efforts to combat office vacancies, the fundamentals for muni bond ETFs remain strong. These funds can help investors diversify and access robust yield potential.
Diversified Short Duration Exposure
Investors who wish to stay engaged with muni bonds may wish to give a fund like the Eaton Vance Short Duration Municipal Income ETF (EVSM ) a shot. This Eaton Vance fund can give investors diversified access to the municipal bond market, with a focus on short-duration assets.
In terms of sector allocation, EVSM holds muni bonds tied to a variety of different areas. However, the fund holds noticeably stronger exposure towards the Hospital, Transportation, and General Obligations sectors.
Even as the commercial real estate market struggles to get back up, investors continue to pour funds into EVSM. Over the last month, EVSM has seen over $7.5 million in net flows.
For more news, information, and analysis, visit the Portfolio Construction Channel.
