Good News Friday
Where to Begin?
March 5, 2010
There is more good news out there than usual, making it tough to know where to begin.
- Vacancy rates in two sub-categories of commercial real estate may have already peaked at year-end 2009. Medical office buildings recorded a fourth-quarter vacancy rate of 11.8 percent, unchanged from the third quarter while the vacancy rate for logistics buildings (a subset of industrial) was stable at 13.6 percent in the third and fourth quarters. Moreover, the vacancy rate for Class A logistics space with top-of-the-line features and functionality ended the year at 16.6 percent, down from 17.2 percent in the third quarter. A rebound in demand coupled with declining deliveries of new space was the winning formula for both property types.
- The Moody’s/REAL Commercial Property Price Index, based on repeat sales from the Real Capital Analytics database, increased in both November and December, the latest data available. This seems to support anecdotal evidence that cap rates have eased a bit lower in the last several months for high-quality properties most in demand by investors. Lesser quality properties in secondary and tertiary markets continue to struggle, however.
- In the big economic news of the day, the Labor Department reported that payroll employment fell by 36,000 in February while unemployment was stable at 9.7 percent. Although still in the red, the payroll number beat expectations for a decline of 50,000 and the Wall Street “whisper” number of minus 100,000, which were based on the harsh weather during the week of the survey. February could be the last month of job losses because the government will be hiring for the 2010 Census over the next three months. In the second half of the year, private sector employers likely will be ready to grab the baton and continue the momentum.
- Factory orders rose 1.7 percent in January, the fifth consecutive monthly increase. This means that more goods are flowing through global supply chains, which is behind the nascent recovery in demand for logistics space.
- The International Council of Shopping Centers reported that U.S. chain store sales rose by 3.7 percent last month, the best showing since November 2007 just before the recession began. This was in spite of the severe winter weather, which shaved a percentage point from the increase according to ICSC researchers.
- The potential for the Greek debt crisis to destabilize financial markets appears to be easing as the government successfully sold bonds valued at 5 billion Euros to refinance part of its debt.
Robert Bach
SVP, Chief Economist
Grubb & Ellis