Weekly Market Insight 2.16.10

Retail Sales

Consumers are getting back in the game. Total retail and food sales increased in January by 0.5 percent, seasonally adjusted, while core sales, which exclude autos and gas, rose by 0.6 percent. During the 12 months ending in January, total and core sales increased by 4.7 and 2.0 percent, respectively, with total sales boosted by the cash-for-clunkers program. Nevertheless, total sales remain 6.3 percent below their recent peak, and core sales are still down by 2.2 percent. As the labor market begins to improve, consumers will carefully ramp up their spending, including some purchases that were deferred during the depths of the recession. Consumer spending accounts for about 70 percent of total gross domestic product, so even a sluggish recovery in retail sales will help put a floor under the economy and reduce the chances for a double-dip recession. This will support leasing demand for commercial real estate, particularly shopping centers.  Source: Census Bureau, Grubb & Ellis

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

Good News Friday 1.22.10

Signs of a Market Bottom…

Office and industrial vacancy rates increased every quarter last year, but the rate of increase declined as the year progressed. In the four quarters of 2009, office vacancy increased sequentially by 80, 100, 50 and 30 basis points while industrial vacancy increased by 70, 60, 30 and 20 basis points. Absorption followed a similar trajectory: Totals were negative every quarter last year, but fourth quarter losses were the shallowest.

We are hearing about other signs of a market bottom: 

• This could be the year of the long-term lease, replacing the one-year extensions prevalent in 2009. Tenants whose leases expired last year shied away from new long-term commitments given the bleak outlook. But the economy has started to grow again, and profits held up remarkably well through the recession thanks to corporate cost-cutting measures including employee layoffs. Tenants are becoming confident enough to lock in the great deals on offer from landlords.  
• Tenants’ top priority last year was getting the cheapest space, but many tenants are becoming receptive to upgrading their space, i.e. willing to pay a little more for better space. In the retail market, some tenants were shut out of the best locations during the boom. But vacancies have opened up even in the best centers, and retailers are looking at upgrading their locations.  
• In a few markets, landlord psychology is beginning to shift. The office vacancy rate continues to rise in San Francisco, but some property owners have reduced their concession packages, believing the worst has passed.  
• Industrial brokers in some locations including Tampa and Columbus are reporting increasing activity by tenants looking to take advantage of very low rental rates.

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@mtcommercialre.com OR Joe Cobb at 406.579.2999 or joe.cobb@mtcommercialre.com.  www.MTcommercialRE.com

Weekly Market Insight 1.19.10

Commercial Real Estate Vacancy Rates

The average U.S. vacancy rates for the four core property types – office, industrial, retail and apartment – continued to rise in the fourth quarter, but the rate of increase slowed for office and industrial. Vacancy rates last quarter increased by 30 basis points for office and 20 basis points for industrial compared with third-quarter gains of 50 and 30 basis points, respectively. This raises the possibility that the office and industrial leasing markets may bottom out as early as mid-year with modest, positive absorption possible in the second half of 2010. In the office market, a prerequisite for this relatively early bottoming would be for employers to begin adding jobs in the first half of this year, which would also provide support for the apartment and retail markets. For the industrial market, continued improvement in the drivers of demand for industrial space – production activity, freight shipments and global trade – would help the market bottom out around mid-year.  Source: Reis, Grubb & Ellis

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

Weekly Market Insight 1.11.10

Commercial RE Loans at Commercial Banks

Percentage of All Bank Loans and Leases, November 2009

Commercial real estate loans accounted for 24 percent of all loans and leases at commercial banks in the U.S. as of November. The Federal Reserve defines these to include “construction, land development, and other land loans, and loans secured by farmland, multifamily (5 or more) residential properties, and nonfarm nonresidential properties.” Large domestically chartered banks – the 25 largest in terms of domestic assets – held 17 percent of their loans and leases in commercial real estate while small domestically chartered banks held 41 percent in this category. The preponderance of commercial real estate loans at small banks suggests more failures to come as distressed assets continue to accumulate. Moreover, small banks lend to small businesses, which are job incubators; commercial real estate loan problems at small banks could impinge upon their ability to lend, which could dampen the labor market recovery. 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 12.28.09

Home Sales In Millions. Source: Census Bureau, National Association of Realtors, Grubb & Ellis

Sales trends for new and existing homes parted company in November. The National Association of Realtors reported that existing home sales rose 7.4 percent from October to a seasonally adjusted annual rate of 6.54 million units, the highest level since February 2007. Meanwhile, the Census Bureau reported that new home sales sank to a seasonally adjusted annual rate of 355,000 units, down 11.3 percent from October and the weakest level in seven months. Sales of foreclosed and other distressed properties are inflating existing home sales at the expense of new home sales, having accounted for 33 percent of existing sales last month. The tax credit for first-time buyers, which was set to expire at the end of November, helped both new and existing home sales. But new home sales are counted when the sales contract is signed or a deposit is accepted while existing home sales are counted when the sale is closed, meaning that new home sales attributable to the tax credit likely showed up earlier in the data. The extension of the tax credit through April 2010 and its expansion to include some repeat buyers will provide a boost to home sales as the spring selling season gets underway. Besides ending the tax credit next year, the government will wind down its purchases of mortgage-backed securities, which has helped keep mortgage rates low. The withdrawal of these support programs will be a test to see if the housing market can continue to recover on its own or whether there could be another leg down in prices as foreclosures continue to mount.  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 406.579.299 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