COMMERCIAL REAL ESTATE CONDITIONS VARIED FROM AREA TO AREA

COMMERCIAL REAL ESTATE CONDITIONS VARIED FROM AREA TO AREA

INDUSTRIALS EVEN WEAKENED IN L.A.

Commercial real estate conditions are uneven across the country and vary notably in some areas, according to a commercial real estate update and forecast presented here at the National Association of REALTORS® Midyear Legislative Meetings & Trade Expo.

During the first three quarters of 2007, commercial real estate investment was in excess of $100 billion per quarter. In the first quarter of 2008 it slowed to the range of $35 billion to 38 billion.

In analyzing NAR’s Commercial Leading Indicator for Brokerage Activity, NAR Chief Economist Lawrence Yun said to expect broadly slower net absorption for industrial space.

“I see a topping off in commercial building construction, and a decline in private non-residential construction spending. We project generally softer rent growth in commercial real estate, and modestly lower business opportunities in most market areas for commercial practitioners. As in the residential sector, areas with strong job growth are doing fairly well.”

Overall job gains are slowing, but retail employment has been weak since the beginning of this year, construction jobs have been trending down since the beginning of last year, and manufacturing jobs have been trending down since the start of the decade, Yun noted. “On the other hand, professional business service jobs have been rising since the middle of 2003, and that supports demand in the office market. Wholesale trade jobs have trended up since the middle of 2004, reflecting stronger international trade conditions.”

Job growth has been strongest in Colorado, Louisiana, Texas, Washington, Wyoming and Utah.

Job losses are reported to be greatest in Arizona, California, Florida, Michigan, Nevada, and Ohio.

This is a different outlook than even two months ago. At the end of the first quarter, when Yun observed, “We’re seeing no significant changes in vacancy rates or rent growth, so the fundamentals in commercial real estate still seem to be respectable. Under normal circumstances, near-full occupancy coupled with positive rent growth would be of strong interest to investors, but we’re not seeing that. The credit crunch has filtered into the commercial real estate market.”

It was noted that Industrial activity remains strong in port and distribution hubs, with relative weakness around many manufacturing centers. International trade continues to play a pivotal role in industrial real estate, and it was predicted that as one of the areas with the lowest industrial vacancy rates, Los Angeles was expected to remain a landlord’s market for the next four to five years. (http://www.socalindustrialrealestateblog.com/?p=255)

“Commercial fundamentals are good, but investment has been hurt by the credit crunch,” he noted, reiterated heavily reported information that “investment in the commercial sectors decelerated in the first quarter after setting a record in 2007.”

Much of it due to the spidering of the subprime loan fallout, and election year hesitation. Even with concerns about inflation and consumer confidence, and weakness of the dollar, corporate profits have been near record highs. Exports are growing faster than imports, and business spending on equipment and software has trended up strongly since the beginning of 2003.

“Altogether, I don’t expect a recession, but rather a period of slow economic growth that should improve in the second half of this year,” Yun said.

Here is NAR’s forecast for the Industrial Real Estate Market

Industrial Market

Net absorption of industrial space in 58 markets tracked is estimated to edge down from 35.4 million square feet in the second quarter of last year to 33.3 million in the second quarter of 2008.

Industrial vacancy rates nationally will probably rise to 9.6 percent in the fourth quarter from 9.4 percent in the same period in 2007. Annual rent growth should be 3.3 percent by the end of 2008, compared with 3.6 percent in the fourth quarter of last year.

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http://www.realtor.org/press_room/news_releases/2008/mixed_commercial_re...