CRE, Economy Enter a New Cycle

WASHINGTON, DC-The economy--and by extension, the commercial real estate industry--is in the very beginning stages of a new cycle of expansion, according to the Mid-Year National Forecast by Cassidy Turley. To be sure, it is not going to feel like a new beginning for the commercial real estate industry for several more months, Kevin Thorpe, chief economist at Cassidy Turley, tells GlobeSt.com. "Real estate is a lagging indicator of six to nine months."

But given the progress the economy has made, he is projecting positive office absorption nationwide by Q3 and vacancies beginning to stabilize in 2011. By the end of 2011, rents will start to push up in certain top tier markets--something that is already beginning to happen in some Washington, DC submarkets. "I would even argue that we could see rent growth nationwide by the end of 2011," Thorpe says. By 2012, he adds, the recovery will have spread to secondary and tertiary markets. Also in 2011, he predicts, value add properties will start to trade. "Up until now the money has been chasing core, but we are already seeing signs of investors becoming interested in value add."

One factor behind Thorpe’s positive assessment is that the economic recovery is increasingly shaping up to be a job-creating one--as opposed to the dreaded specter of a jobless recovery. In April, for instance, the economy created 290,000 jobs.

The one metric Thorpe is keeping an eye on, though, is the Consumer Confidence Index, which has posted persistently low confidence. The possibility of a double-dip recession cannot be completely ruled out, until the Index is greater than 80, he says. As of May 2010, it registered at 63.3.

Through April 2010, national office sales volume has totaled just $5.1 billion and industrial volume totaled $2.9 billion, compared to $55.4 billion and $15.5 billion, respectively, which occurred from the January to April period during the peak year of 2007, the report also said.