Wolfe and Company Commercial Real Estate

ULI Real Estate Business Barometer — January 2012 by Anita Kramer

The top 11 trends in this month’s Barometer point to cautious optimism in the economy, mixed signals in the capital markets, and a welcome spark in the weak housing market.  Compared with a year ago, 67 percent of the key indicators in the Barometer are better and 33 percent are worse.

In those top 11 trends:

• December’s private sector employment growth was very good—coming in at more than double the historical monthly average—and the high unemployment rate finally inched down to a level not seen in almost three years.  Still, at December’s growth rate, it would take 2.5 years just to regain the 6.1 million jobs lost in the past four years, and improvement would depend not only on private sector job growth but also on a stemming of the loss of public sector jobs.

• Third-quarter 2011 GDP growth was revised downward to 1.8 percent in the final estimate.  While still an improvement over the dismal second quarter, it remains lower than for any quarter in 2010.

• Consumer confidence jumped in December, continuing the momentum of November’s strong increase, although it remains down considerably from four years ago; retail sales rose in November but at a disappointing pace.

• Total construction value put in place increased in November to about two-thirds of the pre-recession high registered in March 2006.

• REIT total returns were healthy in all sectors.

• CMBS issuance, still at relatively low levels, rose in December for the second-straight month, suggesting an easing away from the volatility of the past year; delinquency rates were on the rise once again.

• Commercial property prices were mixed in October, showing strong growth, moderate growth, or no change, depending on the index and property grade.  Repeat-sales indices are off about 30 percent from their pre-recession highs while an estimate-based index is down less than 10 percent.

• Commercial property transaction volumes were down in November and are below the long-term monthly average.  The top five most active sales markets in the past 12 months, according to Real Capital Analytics, are Manhattan, Los Angeles, Chicago, the Virginia suburbs of Washington, D.C., and Boston.

• Permits, starts, and sales of new single-family homes were up slightly in November but prices declined.  The industry remains about the smallest it has been in over 40 years.

• Multifamily housing permits and starts jumped in November to monthly levels not seen since fall 2008. While still low relative to its long-term average activity, this industry is closer to normal levels than the single-family industry.

Total foreclosure filings are down, but one phase, scheduled auctions, are at a nine-month high.  These will come onto the market as REOs or short sales.