Tag Archives: Recovery

Commercial Real Estate Market - AZRE Magazine March/April 2011

NAIOP: Commercial real estate strongest since economic recovery

The commercial real estate development industry grew at the strongest pace since the economic recovery began in 2011, according to an annual report on the state of the industry released today by the NAIOP Research Foundation.  The report, entitled “The Economic Impacts of Commercial Real Estate,” determined that the economic impact realized by the development process rose a significant 24.06 percent over the previous year, the largest gain since the market began to recover in 2011. Direct expenditures for 2013 totaled $124 billion, up from $100 billion the year before, and resulted in the following economic contributions to the U.S. economy:

·       Total contribution to U.S. GDP reached $376.35 billion, up from $303.36 billion in 2012;
·       Personal earnings (or wages and salaries paid) totaled $120.02 billion, up from $96.75 billion in 2012; and
·       Jobs supported (a measure of both new and existing jobs) reached 2.81 million in 2013, up from 2.27 million the year before.

The report says that the outlook for the remainder of 2014 and into 2015 is that the figures will continue to rise, with year-over-year growth expected in the range of 8-15 percent.

Commercial real estate development has an immense ripple effect in the economy, providing wages and jobs that quickly roll over into increased consumer spending.

“Commercial development’s economic impact is tremendous; simply put, a healthy development industry is critical to a prosperous U.S. economy,” said Thomas J. Bisacquino, NAIOP president and CEO. “As the uneven pace of the nation’s economic recovery continues, the industry seeks public policy certainty that bolsters investors’ and developers’ confidence. Despite this lack of assurance, we see positive indicators of a rebounding industry, but believe the industry could be more robust.”

Industrial, Warehousing, Office and Retail Show Strong Gains:

·       Industrial development posted a year-over-year gain of 48.5 percent due mainly to groundbreaking of energy-processing facilities.
·       Warehouse construction registered a third strong year of increased expenditures in 2013, gaining 38.1 percent in 2013. This is on top of 2012 growth of 28.4 percent and 2011 growth of 17.8 percent, showing a sustained increase in demand for warehousing space.
·       Office construction expenditures rose for a second year in 2013, up 23.3 percent from 2012.
·       Retail construction expenditures rose modestly for a third year in 2013, up 4.8 percent from 2012.

Operations and Maintenance Surge Even As Building Owners Cut Costs With Energy Efficiencies and New Technologies:

Through increased energy efficiency and advanced technology, building owners cut the average per-square-foot cost of operating building space in the U.S. by 14  cents, from $3.20/square foot to $3.06/square foot. Still, maintaining and operating the existing 43.9 billion square feet of commercial real estate space resulted in $134.3 billion of direct expenditures, and resulted in the following economic contributions to the U.S economy:

·       Total contribution to GDP in 2013 $370.9 billion;
·       Personal earnings (wages and salaries) totaled $116.8 billion; and
·       Jobs supported, 2.9 million.

Top 10 States by Construction Value for Office, Industrial, Warehouse and Retail:

1.     Texas
2.     Louisiana
3.     New York
4.     California
5.     Iowa
6.     Florida
7.     Maryland
8.     Georgia
9.     West Virginia
10.  Oregon

Four new states joined the list: Louisiana at No. 2, Maryland at No. 7; West Virginia at No. 9, and Georgia at No. 10. These states made the top ten list due predominantly to development of highly specialized and expensive energy-related processing facilities.

Illinois, Ohio, Massachusetts and North Carolina dropped off the top 10 list, slipping to Nos. 11, 14, 15 and 18 respectively. The report includes detailed data on commercial real estate development activity in all 50 states, and also ranks the top 10 states specifically according to office, industrial, warehouse and retail categories.

The report is authored by Dr. Stephen S. Fuller, director of the Center for Regional Analysis at George Mason University, and funded by the NAIOP Research Foundation.

Where Arizona ranks nationally in terms of value of construction:

>> Office……………………………… 10
>> Industrial………………………… 41
>> Warehouse ……………………… 8
>> Retail/entertainment ……..22

>> Overall..…………………………..22

recovery sign

ASU Experts: Economy Rebounds, But Is Still Years From Full Recovery

Despite positive growth, full economic recovery is still two years away for the nation and at least three years away for Arizona. That message was delivered today by top economists from the W. P. Carey School of Business at Arizona State University. The experts spoke at the annual Economic Outlook Luncheon sponsored by the Economic Club of Phoenix.

“Arizona lost 314,000 jobs during the recession, and we’ve only added back around 25 percent of those,” explained Research Professor Lee McPheters, director of the JPMorgan Chase Economic Outlook Center at the W. P. Carey School of Business. “We’ll probably pick up about 48,000 jobs this year in the state, but it will be three to four years until we can expect to see full recovery.”

McPheters says Phoenix is on its way to a significant rebound, having ranked No. 4 among the nation’s large cities for total job growth from March 2011 to March 2012. Arizona is already back to its position as a Top 10 job-growth state, ranking No. 8 for the same time period. Health care and hospitality are two of the fields doing relatively well in the recovery here.

“Arizona’s recovery will be slow, but it appears sustainable as long as the U.S. economy stays on track,” said McPheters. “Businesses should plan now for long-term improvement.”

Nationally, McPheters says the country has already gained back 40 percent of the 8.9 million jobs it lost during the recession.

However, Robert Mittelstaedt, dean and professor of management at the W. P. Carey School of Business, said, “Many experts are still looking at the national-debt situation as an issue. April was the first time since September 2008 that we’ve had a monthly surplus, and that is not likely to be repeated anytime soon.”

Mittelstaedt points out that the recent peak for the U.S. deficit was 10.1 percent, which happened in 2009. The last time the national debt was at that level or worse was all the way back in 1945.

Professor Dennis Hoffman, director of the L. William Seidman Research Institute at the W. P. Carey School, gave an analysis of the state’s budget situation. He says taxes on individuals are relatively low in Arizona, and the public pensions are generally solvent. Also, the recent upswing in the economy has helped provide some stabilization for incoming state revenue, even though tax collections as a share of income have continued to fall for years. However, the current clarity in the fiscal picture will start to get cloudy again.

“Next year, the temporary sales tax will expire, and within five years, the Arizona corporate income-tax rate will be about 30 percent lower than it is today,” explained Hoffman. “This presents some fiscal challenges that will have to be managed.”

As for the housing market, Mike Orr, director of the Center for Real Estate Theory and Practice at the W. P. Carey School, delivered some good news for hard-hit homeowners.

He said, “Home prices are on the rise in the Phoenix area, and we expect that trend to continue.”

The median single-family home price already went up more than 20 percent from March 2011 to March 2012. The bounce was from $112,000 last March to $134,900 this March.

“Most homes under $250,000 are attracting multiple offers within a couple of days, and there are far more buyers than sellers,” said Orr. “We’ve also seen a big shift in the types of transactions in the market from a focus on lender-owned home sales to a rise in normal resales, new-home sales, investor flips and short sales.”

The number of foreclosures completed this March was down a whopping 60 percent from last March. Also, the number of delinquencies on loans – those who are behind on payments, but not in foreclosure – is down 51 percent. All of this means the supply of lower-priced homes in the area is down to less than a month’s worth of inventory, and new-home construction is cranking up to try to help meet the demand.

Today’s Economic Outlook Luncheon was held at the Westin Kierland Resort & Spa in Scottsdale. The Economic Club of Phoenix hosts the Economic Outlook Luncheon every spring, as one of its opportunities for Valley business leaders and others to network and engage. The club was founded by a group of prominent business executives called the Dean’s Council of 100, in conjunction with the W. P. Carey School of Business. More information about the club can be found at wpcarey.asu.edu/ecp.

Economic Forecast

Economic Forecast: Arizona, U.S. to Show Improvement in 2012

Improvement in both the Arizona and U.S. economies can be expected next year, but full recovery is still a few years away. That’s according to experts who spoke Wednesday at the 48th Annual Economic Forecast Luncheon, co-sponsored by ASU’s W.P. Carey School of Business and JPMorgan Chase.

 More than 1,000 people packed into the Phoenix Convention Center to hear the outlook for 2012. The experts say that though U.S. economic growth was actually slower this year than last year, conditions for 2012 are looking up for the nation and state.

“Although the Arizona recovery is tepid at best, every key indicator is expected to improve in 2012 as compared to 2011, including jobs, incomes, sales and even housing,” said Research Professor Lee McPheters, director of the JPMorgan Chase Economic Outlook Center at the W. P. Carey School of Business. “Still, no indicator will be sharply better until the national economy moves onto a faster growth path.”

McPheters says Arizona hasn’t been rebounding with the same vigor seen in previous recovery periods. The state lost 324,000 jobs from 2007 to 2010. By the end of this year, only about 20 percent of those will be restored. However, Arizona did move from No. 49 among the states for job creation in 2010 all the way up to a Top 10 growth state this year.

“After three consecutive years of lost employment, about 23,800 jobs were added in 2011,” said McPheters, editor of the prestigious Arizona and Western Blue Chip Forecast publications. “Arizona employment is expected to increase by 45,000 jobs in 2012. However, we’re now at about 9 percent unemployment in the state and expect unemployment to continue to be a problem next year, dropping to around 8.5 percent. Healthcare and manufacturing are among the sectors doing relatively well.”

McPheters also expects Arizona’s population to grow by 1.5 percent in 2012, faster than the national average of about 1 percent, but slower than Texas and Colorado. Personal income is expected to go up 6 percent in Arizona. Retail sales are projected to rise by 8 percent. Cautious consumers have largely been putting off non-essential spending, but may relieve some pent-up demand next year.

In the hard-hit housing market, McPheters predicts 20-percent growth in single-family housing permits. However, Elliott D. Pollack, president of highly regarded economic and real estate consulting firm Elliott D. Pollack and Company, explained that even a large percentage growth in this area doesn’t mean much.

“Permits have bottomed out, but they are still down 89 percent from the peak,” Pollack said. “About 50,000 to 55,000 excess housing units remain in the Greater Phoenix area.”

Foreclosures and short sales have been dragging down existing-home prices. Pollack says, in the third quarter of this year, 25 percent of the existing-home transactions were foreclosures, and another 29 percent were short sales. Also, more than 40 percent of the homes being sold are going to investors and other owners who won’t actually live there.

“On the positive side, the number of units going into foreclosure is declining, and housing prices appear to have stabilized,” said Pollack. “Depending on population growth, job growth and other factors, we could see full housing recovery in three to four years.”

Pollack says the apartment market is already looking good, as many people switch to renting. Vacancy rates in industrial space have started to decline, and an increasing number of companies are looking at the Phoenix area as an alternative to California. Still, about one out of every four square feet of office space in the metro area is vacant.

At the national level, experts expect 2012 to bring an increase in gross domestic product (GDP) of somewhere between just under 2 percent to 3 percent. Professor John B. Taylor, the George P. Schultz Senior Fellow in Economics at Stanford University’s Hoover Institution, talked about what needs to be done in this area.

“The economy wasn’t nearly this weak in the 1980s, following an equally deep recession when unemployment rose to even higher levels,” said Taylor, who served as Undersecretary of the Treasury during President George W. Bush’s first term and on the President’s Council of Economic Advisers for President George H. W. Bush. “Recently, we have seen a return toward more government intervention for fiscal, monetary, regulatory and tax policy. These swings have had enormous consequences for the American economy.”

Taylor says the country needs a predictable government policy framework based on law with strong incentives derived from the market system and a clearly limited role for government.

Anthony Chan, chief economist for private wealth management at JPMorgan Chase & Co., specifically addressed the future of the financial markets. He said many stocks are a bargain now.

“We currently face oversized volatility and uncertainty; for this reason, we believe stocks are attractively priced from a historic perspective,” said Chan, who served as an economist at the Federal Reserve Bank of New York, appears monthly on CNBC, and is a member of the Reuters, Bloomberg and Dow Jones weekly economic indicator panels. “Prices should gravitate toward fairer values when the outsized degree of uncertainty lifts.”

Chan added corporations are sitting on “huge amounts of cash,” while paying out low dividends. When business sentiment improves and uncertainty is reduced, he expects faster employment and economic growth. He also believes high-yield and municipal bonds will remain a good investment as long as the country doesn’t fall into recession. Still, he is concerned the United States may be losing some control over its long-term destiny, noting that China and Japan hold a combined 46 percent of U.S. Treasuries.

“It is hard to believe the U.S. influence will remain as dominant as it once was, if this trend persists,” said Chan. “Meantime, emerging markets are becoming more attractive. Consider a diversified portfolio.”

For more details and analysis on the 2012 economic forecast, including the presentation slides, go to knowwpcarey.com.