Good News Friday 12.18.09

Concluding Thoughts for 2009

Economic downturns can be an opportunity for savvy businesses to grab market share according to a story this week on NPR’s Morning Edition (click here to listen). The story notes that company market shares change more during a downturn than at any other time.

But this downturn is coming to a close. Former Federal Reserve Chairman Alan Greenspan, appearing on Meet the Press last Sunday, said that the recession probably ended in July or even in June. He went on to say that employers “presumed that the economy was going to go down far more sharply than it actually did… What this means is that we have a level of employment at this stage which is barely adequate to staff the level of output, and… it seems to me virtually inevitable that if nothing else were to happen that employment would start to come back fairly quickly.”

Alan Blinder, professor of economics and public affairs at Princeton University and a former vice chairman of the Federal Reserve Board, makes the same point in an op-ed article in The Wall Street Journal this week titled “The Case for Optimism on the Economy” (click here). He notes that “Fearful businesses pared payrolls to the bone… Which means that firms will need to hire more workers as their sales and production grow. Which means that employment may start growing sooner than the pessimists think.”

This is the 39^th edition of Good News Friday. The first one came out on Friday, March 20^th during the depths of the credit crisis and the recession. But we were already past the low point. The Dow Jones Industrial Average hit bottom on March 9^th and embarked on what turned out to be a 57 percent rally as of yesterday, while net monthly job losses had peaked at 741,000 in January and were down just about every month since then, to 11,000 last month. Problems remain, of course, but the economy proved to be far more resilient than just about anyone thought.

Courtesy of Robert Bach, SVP, Chief Economist, Grubb & Ellis.

For a free consultation of your commercial real estate needs please contact Sean Thompson at 406.539.0082 or sean.thompson@grubb-ellis.com OR Joe Cobb at 406.579.2999 or joe.cobb@grubb-ellis.com.  www.MTcommercialRE.com

Weekly Market Insight 12.14.09

Retail Sales

Year Over Year % Change, Seasonally Adjusted

Retail sales are headed in the right direction with total and core sales (excluding vehicles and gasoline) posting their first year-over-year gains since the fall of 2008. It’s one more piece of evidence that the economy is firming up, but it comes with a caveat; the year-ago comparisons from which the gains are calculated were very low because that was when the credit crisis really got rolling, and consumers were deeply concerned about their financial well-being. Since then, the stock market has bounced part of the way back, home prices have found at least a temporary bottom and job losses are abating. Moreover, there is likely some pent-up demand that has accumulated since consumers snapped their billfolds shut in late 2008. Consequently, retailers may do a bit better this holiday season, particularly since their inventories are lower and they may not need to discount as steeply. While good news for shopping center landlords, this does not mean that recovery is imminent. Expect leasing market conditions to soften through most of 2010 as retailers downsize further and the construction pipeline continues to empty out. Courtesy of Robert Bach, SVP, Chief Economist, Grubb & Ellis.

For a free consultation of your commercial real estate needs please contact Sean Thompson at 406.539.0082 or sean.thompson@grubb-ellis.com OR Joe Cobb at 406.579.2999 or joe.cobb@grubb-ellis.com.  www.MTcommercialRE.com

Good News Friday 12.11.09

Let’s Trade

International trade volumes are rebounding at a rapid rate, the unmistakable signs of a global economic expansion. Since bottoming in April, U.S. exports have risen by 12.4 percent through October thanks in part to the weak dollar, which has made domestically produced goods more affordable for our trading partners. Investment-based exports consisting of capital goods and industrial supplies were up a combined 3.2 percent in October, led by aircraft, computer equipment, chemicals and precious metals. Import volumes are up 13.0 percent from their trough in May, a sign that domestic demand is recovering. The growth in trade means that more goods are flowing through corporate supply chains, which will support demand for warehouse/distribution space. Moreover, the growing demand for U.S. exports is boosting the manufacturing sector, which will support demand for manufacturing and general industrial space. Courtesy of Robert Bach, SVP, Chief Economist, Grubb & Ellis.

For a free consultation of your commercial real estate needs please contact Sean Thompson at 406.539.0082 or sean.thompson@grubb-ellis.com OR Joe Cobb at 406.579.2999 or joe.cobb@grubb-ellis.com.  www.MTcommercialRE.com

Weekly Market Insight 12.7.09

Office Vacancy vs. Class A Rent

It’s a simple equation: The office market will not begin to recover until employers start hiring again. Friday’s employment report from the Labor Department showing that just 11,000 payroll jobs were eliminated in November and the unemployment rate fell from 10.2 to 10.0 percent is a hopeful sign, but one data point isn’t enough to change the outlook for a slow recovery. Expect office leasing market fundamentals to soften in 2010 with vacancy ending the year at 18.7 percent, up from 17.1 percent in 2009-Q3. The asking rental rate for Class A space is likely to fall another 5 percent next year. The market is expected to turn in 2011 as the vacancy rate embarks on a slow descent, though asking rent may slip a bit further due to the abundance of excess space that will remain on the market in the early stages of the recovery.  Source: Grubb & Ellis

For a free consultation of your commercial real estate needs please contact Sean Thompson at 406.539.0082 or sean.thompson@grubb-ellis.com OR Joe Cobb at 406.579.2999 or joe.cobb@grubb-ellis.com.  www.MTcommercialRE.com 

Good News Friday 12.4.09

Some Really Good News

It’s never a good idea to extrapolate from a single data point, but this morning’s far-better-than-expected November report from the Labor Department raises the possibility that employers could begin adding jobs sooner than expected. Just 11,000 payroll jobs were eliminated last month, well below the consensus for a loss of 125,000, while the unemployment rate declined from 10.2 to 10.0 percent. September and October losses were revised lower by a combined 159,000. T emporary employment, which precedes permanent hiring, has been growing since August, up by 117,000 over the past four months.

A near-term resumption of employment growth would have positive implications for consumer confidence and spending and perhaps negative implications for higher inflation and interest rates. For commercial real estate, where demand depends heavily on job growth, it would lend support to net operating incomes and property values, helping to cushion the distress that continues to mount from the lack of debt capital available to renew maturing loans.

The November jobs report could be an outlier with more losses to follow in the coming months, and the drop in the unemployment rate is likely to prove temporary. But it is one more piece of evidence that the economy is on the right track, which is really good news.

Courtest of Robert Bach, SVP, Chief Economist, Grubb & Ellis.

For a free consultation of your commercial real estate needs please contact Sean Thompson at 406.539.0082 or sean.thompson@grubb-ellis.com OR Joe Cobb at 406.579.2999 or joe.cobb@grubb-ellis.com.  www.MTcommercialRE.com

Weekly Market Insight 11.30.09

Industrial Vacancy vs. Warehouse Rent*

The drivers of demand for industrial space are beginning to firm: global trade, freight transportation, manufacturing activity and retail sales all seem to have hit bottom and either leveled out or posted slight gains recently. But the pending recovery is not yet strong enough to reverse the slide in occupier demand for industrial space. Expect the leasing market to soften further in 2010 with the vacancy rate hitting a peak of 11.4 percent by year end, a percentage point above its 2009-Q3 reading. The asking rental rate for warehouse/distribution space is projected to fall another 5 percent in 2010. In 2011, the vacancy rate should begin a slow descent while rent may slide another 2 percent due to the lingering excess of available space. The signs of improvement are there, but the recovery will be slow. Courtesy of Robert Bach, Chief Economist, SVP, Grubb & Ellis.

For a free consultation of your commercial real estate needs please contact Sean Thompson at 406.539.0082 or sean.thompson@grubb-ellis.com OR Joe Cobb at 406.579.2999 or joe.cobb@grubb-ellis.com.  www.MTcommercialRE.com

Weekly Market Insight 11.23.09

Cost of Thanksgiving Dinner Ingredients for 10

Source: American Farm Bureau Federation

Holiday shoppers keeping an eye on their food budgets will be pleased to know that the cost of the ingredients for a Thanksgiving dinner for 10 declined by 3.8 percent this year to $42.91 according to the American Farm Bureau Federation. Black Friday shoppers will find even bigger markdowns in the world of commercial real estate. Renting a square foot of office space for a year will cost $26.57, a discount of 3.9 percent from the third quarter of last year, while landlords have marked down a square foot of industrial space by 6.8 percent to $5.35. Those are the asking rents, equivalent to the sticker price on a new car. Shoppers willing to haggle should be able to secure bigger markdowns. So far this year, effective rents for office and industrial space, which include periods of free rent and above-standard tenant improvement allowances, have fallen by 12.2 and 6.8 percent, respectively, from the same period in 2008. Want to build your own building? The Bureau of Labor Statistics reports that non-residential construction costs have declined by 5.9 percent from a year ago, with steep discounts for land also available. The most impressive bargains are in the big-ticket category of building acquisitions where sales prices have declined by 37 percent from a year ago as reported by the Moody’s / Real Commercial Property Price Index. These statistics are averages. There are considerable variations by product type and by geography.  Courtesy of Robert Bach, SVP, Chief Economist, Grubb & Ellis.

 

For a free consultation of your commercial real estate needs please contact Sean Thompson at 406.539.0082 or sean.thompson@grubb-ellis.com OR Joe Cobb at 406.579.2999 or joe.cobb@grubb-ellis.com.  www.MTcommercialRE.com

Good News Friday 11.20.09

The Elevator Speech

Lately I’ve been speaking a lot to clients and professional groups about the outlook for 2010. Sometimes people buttonhole me as I get my coffee or wait for the presentation to begin. It often sounds like this: “So, are you going to give us some good news today?” This is delivered with a hint of sarcasm because they don’t expect good news from an economist, but they do want to know the bottom line. At Grubb & Ellis, we call this the elevator speech, when a client asks for our view of the market in less than a minute – the length of an elevator ride.

Here is my elevator speech: The recession is over, but 2010 is not going to feel like a classic recovery. There are too many headwinds, notably lagging job creation, lingering weakness in consumer spending and tight lending conditions. But we will see more decisions made by tenants, landlords, buyers, sellers and lenders. Keep in mind that Depression 2.0, a latter-day version of what the world endured in the 1930s, was still on the table through the first few months of this year, which made everyone freeze in place. Next year will bring more clarity and with it an increase in leasing and investment transactions. It won’t be pretty, but we are likely to see more results from our efforts.

Courtesy of Robert Bach, SVP, Chief Economist, Grubb & Ellis

For a free consultation of your commercial real estate needs please contact Sean Thompson at 406.539.0082 or sean.thompson@grubb-ellis.com OR Joe Cobb at 406.579.2999 or joe.cobb@grubb-ellis.com.  www.MTcommercialRE.com

Weekly Market Insight 11.2.09

Personal Consumption Expenditures

Office leasing activity through the third quarter is off by one-third from the same period in 2008, yet the share of activity by the size of tenant is surprisingly consistent. Office tenants leasing less than 10,000 square feet accounted for 29 percent of the total square footage leased this year while tenants needing less than 25,000 square feet comprised more than half of the total. Many of these tenants are branch offices of larger companies, but the importance of smaller tenants to the office market, particularly in non-headquarters cities, may affect the speed of the recovery. Small companies are the engine of job growth in the U.S., and the extent to which they have difficulty borrowing in order to expand could delay the recovery of both the labor market and the office.
Source: U.S. Bureau of Economic Analysis, Grubb & Ellis

For a free consultation of your commercial real estate needs please contact Sean Thompson at 406.539.0082 or sean.thompson@grubb-ellis.com OR Joe Cobb at 406.579.2999 or joe.cobb@grubb-ellis.com.  www.MTcommercialRE.com

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