CHICAGO-The cover title of the digital Commercial Real Estate Guide to the 2012 Economy should read, with all respect to the late Douglas Adams, “Don’t Panic!”
The commercial real estate markets will likely continue to improve, though it will be an anemic growth, so slow that it will barely feel like upward movement, according to industry experts. This weak strength will come even though the economy has taken a step back due to the global debt crisis, the politicians in Washington, DC aren’t likely to agree on a Turkey Day seating chart much less a financial plan, and even Fed Chairman Ben Bernanke, who recently put out a doom-and-gloom economic hex on next year.
Third quarter US GDP came in 2.5%, lower than needed but better than expected, according to Asieh Mansour, head of research at CBRE. “We now expect global real GDP to expand by 3% in 2012,” she said in a recent CBRE Economic Snapshot report. “We continue to call for sluggish growth rather than another world recession as the most likely scenario.”
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Another US positive is that the 1.8 million jobs recovered since the recession (out of about eight million jobs lost) have been spread around in professional, high tech/medical and even manufacturing sectors. Thanks to a roaring apartment market and virtually no development in office, industrial and retail, property will place high on investor outlooks, especially from foreign ports, the experts say.
Bill Krouch, CEO of markets for Jones Lang LaSalle, tells GlobeSt.com that he doesn’t think the picture looks bleak. “In spite of a flat economy and low GDP growth, there’s still a fair amount of activity,” he says. “We just reported in our third quarter report that our revenue is up 20%. Leases are up every year, they need to get done, even in a flat market. There’s plenty of capital that wants to buy real estate.”
Property isn’t dead. Hot markets today include apartments, technology clusters such as San Francisco and Silicon Valley, areas with oil and gas reserves and of course the core markets of Washington, DC and New York, with Boston and Houston seen as up-and-comers.
Bob Bach, SVP and chief economist with Grubb & Ellis, tells GlobeSt.com that the CRE industry is doing a lot better than people thought it would when this whole mess started. “When Lehman collapsed in 2008, the media was trumpeting that commercial would be the next shoe to drop,” he says. “I remember the Wall Street Journal ran a large story on that, that values would go down and loans wouldn’t roll over.”
The low interest rates provided the life rafts, and lenders being allowed to “extend and pretend” with loans, instead of being forced to pick them up at discounts, provided the port in the storm.
In fact, despite the fanfare and celebratory mood at this year’s ICSC RECon in May, retail is the one commercial sector that continues to lag behind, Cassidy Turley Chief Economist Kevin Thorpe tells GlobeSt.com. However, with grocery-anchored properties also a hot commodity, and consumer confidence likely to improve through next year, “it is reasonable to expect that the retail sector will begin absorbing space in early 2012,” he says.
Commercial real estate has already demonstrated for a solid 18 months that it can perform reasonably well in the throes of a deleveraging economy, according to a November US Macro Forecast by Cassidy Turley. Since April of 2010, the US office sector has absorbed 61.6 million square feet, the industrial sector has absorbed 91.5 million square feet and the apartment sector has absorbed about 324,000 units.
Also, according to CT, the CMBS market should return with larger volume numbers, to at least $40 billion in 2012 because of refinancing needs. Whether investment will move past the core markets and into secondary markets will depend on the precariousness of the world stage, with investors holding the panic button.
Hessam Nadji, a managing director at Marcus & Millichap, says he subscribes to the “after-election” crowd. “I wouldn’t call 2012 a turning point,” he said during a 2012 Market Outlook Webcast on Tuesday afternoon. “The job creation trend is still below expectations, and the muted housing market will have a tremendous affect on consumer sentiment. Companies need to enter an expansion mode for us to see improvement, and that won’t happen until 2013.”
All bets are off, he said, if another globe-changing event hits the US economic screen. “My concern, and it could even be something outside our country, is that something panics companies and they go back into layoff mode,” Nadji said. “I don’t see that happening, but it is the unknown.”