Economy and CRE Markets Adapt to “New Normal”

CCIM webinar examines factors impacting commercial market recovery.

As 2013 progresses, the U.S. economy and commercial real estate markets continue to settle into a “new normal,” which is reflected in GDP growth, employment trends, and effects of uncertain fiscal policy changes, according to George Ratiu, manager of quantitative and commercial research for the National Association of REALTORS®, who hosted the CCIM Institute’s Feb. 27 webinar, The 2013 Economy and Its Effect on Commercial Real Estate. However, as 1Q13 nears completion, Ratiu’s projections for continued recovery and momentum are favorable. “I feel more optimistic about the economy’s direction than I did even just a few months ago,” he said.

A mild rebound in the housing sector, moderate employment gains, increasing corporate profits and productivity, and rising equity and debt markets continue to support moderate economic growth, Ratiu said. However, consumer confidence concerns and cautious spending, coupled with still-high unemployment figures and volatile energy costs, continue to weigh heavily on the overall economy’s progress, according to data compiled from NAR, Reis, Real Capital Analytics, the U.S. Federal Reserve, and the Bureau of Labor Statistics, among other sources.

In the commercial real estate sector, global investment growth reached 4 percent in 2012, with 15 of the top 30 global markets located in the U.S. Top-performing markets including Seattle and Austin, Texas, drew attention from inbound investors and experienced significant year-over-year investment gains, according to Ratiu. In addition, U.S. commercial property sales volume increased 24 percent last year, and rent growth in the office, industrial, multifamily, and retail sectors is projected continue through 2014. Property prices also maintained an upward trajectory across all four sectors during 2012, with the multifamily sector leading the way. In addition, overall capitalization rates compressed while spreads increased.

“Secondary and tertiary markets were the big story of 2012,” Ratiu says, citing major YOY investment gains in Seattle, Phoenix, Austin, Baltimore, and Charlotte, N.C. Yet “not all recoveries are created equal,” he cautioned, referring to restrained transaction prices in small markets. “In tertiary markets, where most deals were in the $1 million to $1.5 million range, it still may not feel like much of a recovery.” Financing continues to be a challenge, as well as pricing gaps between buyers and sellers. Local banks, regional banks, and private investors are the main sources of funding for the majority of transactions in these markets.

Administered through CCIM Institute’s Ward Center for Real Estate Studies, Ratiu’s webinar is part of an educational series available to members and guests. Learn more about the Ward Center for Real Estate Studies and register for upcoming courses.