Homeownership Rate by Quarter

Two of the biggest unknowns in the “new normal” economic landscape are (1) how long consumer spending will stay depressed and, conversely, how high the savings rate will go, and (2) how low the nation's homeownership rate might drop. The homeownership rate peaked at 69.2 percent in the second and fourth quarters of 2004 and fell to 67.3 percent in the first quarter of 2009 before rebounding slightly to 67.6 percent in the third quarter.

The falling rate of homeownership is a manifestation of low housing sales and increasing foreclosures, and it will extend the time required for the market to absorb excess units. Over time, a lower rate of homeownership is likely to boost demand for rental housing as both households and lenders take a more conservative view of investing in for-sale housing.

Source: Census Bureau

This information is provided by Grubb & Ellis' Research & Knowledge Center

Good News Friday

Not Good, But Getting There - by Robert Bach, Senior Vice President, Chief Economist - Grubb & Ellis

The lead economic story today and this weekend will be that unemployment rose from 9.8 percent in September to 10.2 percent in October, its highest level since April 1982. But there were some silver linings in today’s report from the Bureau of Labor Statistics.

• The 190,000 payroll jobs eliminated in October was the second mildest loss since the credit markets imploded in September 2008.
  
  
• August and September totals were revised to show a total of 91,000 fewer losses.
  
  
• Education and health care services added 45,000 jobs in October, of which 28,500 were in the more narrowly defined health care sector.
  
  
• Temporary help services, a subset of professional and business services, added 33,700 jobs while the August and September totals were revised higher, meaning that the sector has grown for three consecutive months. This is a hopeful leading indicator because temporary hiring generally precedes permanent job creation.
  
  
• The separate jobless claims report released every Thursday shows that new claims have been decreasing since they peaked around the end of March.

The labor market is not improving as fast as might be hoped, but it is improving.

Industrial Trends Report—Third Quarter 2009

Our quarterly market report for the Sacramento Industrial market is now available.

The Power Inn submarket thrived during the quarter, welcoming two large tenants and pushing vacancy in that submarket down 20 basis points. Nestle Waters’ occupancy of their facility on Younger Creek was the big news of the quarter, bringing new jobs to the area as well as contributing to positive net absorption in the Power Inn submarket. Jarden Home Brands also contributed to the positive net absorption, occupying 182,000 square feet on Fruitridge Road.

Overall, the recession continued to take its toll on the Sacramento industrial market. Though net absorption was slightly improved from the previous quarter, even the aforementioned Power Inn deals could not stop the vacancy rate from climbing another 20 basis points to 11.8 percent. Increased vacancy and negative net absorption continued to be a theme across the majority of submarkets.

Please click here to read the entire report.

Should you have any questions about this report or available commercial properties for lease or sale in the Sacramento market, please feel free to contact us at 916-418-6063 or via email at theteam@cvcre.com

Personal Consumption Expenditures

Thursday’s big news that third quarter GDP grew by a robust 3.5 percent was diminished by Friday’s news that personal income was flat and personal consumption expenditures fell 0.5 percent in September. The expiration of the “cash for clunkers” program played a big role in the spending decline. The back-to-back releases highlighted lingering doubts over the strength of the recovery and the disparity between sectors of the economy that are growing, either on their own or supported by government programs, and those that are languishing, notably consumer spending. Commercial real estate falls in the latter category and is likely to be one of the last sectors of the economy to recover.

Good News Friday

It’s Over… (probably) - by Robert Bach, Senior Vice President, Chief Economist - Grubb & Ellis

The so-called Great Recession, the longest and deepest since the Great Depression, is probably over. The Commerce Department’s advance estimate of third quarter gross domestic product came in at 3.5 percent, the strongest gain since the third quarter of 2007. We won’t know for sure which month the recession ended until the National Bureau of Economic Research, a non-profit group of economists, makes the call, and they usually wait for several months after the fact until the data are unequivocal. Besides GDP, the organization takes into account real income, employment, industrial production and wholesale-retail sales. Most economists think the recession ended in the summer or early autumn.

The strong performance is good news, but there are caveats. The “cash for clunkers” program added about one percentage point to the performance, and the $8,000 tax rebate for first-time homebuyers also played a role. It will be interesting to see if the economy can hold its momentum next year as the government support programs wind down.

For commercial real estate, this is certainly good news because it sets the stage for a return to job growth, although that may be several months away. Nevertheless, it is the clearest sign yet that the economy is headed in the right direction.

Office Leasing Activity by Deal Size in 2009

Office leasing activity through the third quarter is off by one-third from the same period in 2008, yet the share of activity by the size of tenant is surprisingly consistent. Office tenants leasing less than 10,000 square feet accounted for 29 percent of the total square footage leased this year while tenants needing less than 25,000 square feet comprised more than half of the total.

Many of these tenants are branch offices of larger companies, but the importance of smaller tenants to the office market, particularly in non-headquarters cities, may affect the speed of the recovery. Small companies are the engine of job growth in the U.S., and the extent to which they have difficulty borrowing in order to expand could delay the recovery of both the labor market and the office.

This information is provided by Grubb & Ellis' Research & Knowledge Center

U.S. Industrial Market First Look: 2009-Q3

• The bad news was that the vacancy rate increased to 10.4 percent in the third quarter, a 15-year high. The good news: The rate of increase was 30 basis points, well below the first and second quarter gains of 70 and 60 basis points, respectively. This trend was evident as well in the office, retail and apartment sectors. Industrial vacancy was lowest in Los Angeles County at 3.2 percent, although the availability rate of 8.7 percent suggests that vacancy is poised to rise as leases expire. Vacancy was highest at 15.2 percent in Phoenix, a region hit hard by the housing slump and job losses.
  
  
• Absorption was sharply negative for a third consecutive quarter as tenants vacated a net total of 32.3 million square feet. Still, this was a slight improvement from the first and second quarter totals of minus 39.8 and minus 51.7 million square feet. Deliveries were at their lowest level of the decade at just 7.1 million square feet, a sign of how thoroughly developers and lenders have cut back. Negative absorption was most pronounced in Northern and Central New Jersey where occupiers returned a net total of 3.8 million square feet to the market. Nevertheless, this was a vast improvement from the 9 million square feet emptied in the second quarter. Eleven of the 56 markets tracked by Grubb & Ellis recorded positive third quarter absorption. The Greater Philadelphia region, encompassing Central and Eastern Pennsylvania, led with 523,000 square feet.
  
  
• Space under construction plunged to 24 million square feet at the end of the third quarter, its lowest level since the mid-1990s. Philadelphia led all markets with 2.6 million square feet remaining in the pipeline, down from a recent peak of 9.5 million square feet in the third quarter of 2008.
  
  
• The average asking rental rate for all types of industrial space offered on the market at the end of the third quarter was $5.34 per square foot per year triple net, a decline of 6.7 percent from the year-ago quarter. The average effective rental rate for industrial space year-to-date declined by 12 percent compared with the annual average for 2008, pushed lower by generous periods of free rent and other concessions to tenants.

Forecast

There are some signs in the economy and the industrial market itself that this brutal softening cycle could be approaching a bottom.

• Many economists including Federal Reserve Chairman Ben Bernanke think the recession is over, although a majority thinks the recovery will be very sluggish, particularly in the labor market.
  
  
• Both imports and exports are on the rise as global trade resumes following precipitous drops last fall. The increase in imports is vital for port-adjacent industrial markets such as California’s Inland Empire, while the increase in exports will support manufacturing-oriented markets such as parts of the Midwest.
  
  
• Retail sales have posted modest increases in recent months, which is significant for markets where retailers locate their distribution centers.
  
  
• Even the long-suffering labor market is showing some signs of life as weekly jobless claims, though still elevated, are at their lowest level since the first week of the year.

Commercial real estate usually is the last industry to recover from a recession, but the slower pace of deterioration in the third quarter raises hope that a market bottom is not too far off. Look for industrial leasing market fundamentals to level out by the middle of 2010 and embark on a slow recovery beginning in 2011.

This information is provided by Grubb & Ellis' Research & Knowledge Center

Commercial Real Estate Vacancy Rates

Market conditions for the four core property types followed a similar path in the third quarter; vacancy rates increased but not as sharply as in recent quarters. This reflects the improving tone of economic data since last spring and the fact that construction pipelines are emptying. Although Federal Reserve Chairman Ben Bernanke and many other economists think the recession has ended, a leasing market recovery depends on job growth.

The last recession ended in November 2001, but payroll employment did not rise above its post-recession level until April 2004 (a 29-month jobless recovery) and did not set a new peak until February 2005 (10 months after that). The recession before that ended in March 1991; the jobless period lasted 14 months, and a new peak was set nine months later. Assuming a jobless recovery of similar magnitude, the labor market would be stagnant until late 2010 and perhaps well into 2011. A jobless recovery of this length seems extreme for the current circumstances, but even so, it appears that leasing markets are unlikely to embark on a meaningful recovery before 2011.

Source: Reis, Grubb & Ellis

This information is provided by Grubb & Ellis' Research & Knowledge Center

Good News Friday

Elephants and Gorillas - by Robert Bach, Senior Vice President, Chief Economist - Grubb & Ellis

One of the leading indicators of the recovery that we haven’t mentioned is the stock market, perhaps because it is so volatile and covered so thoroughly on a real-time basis. But, like the fabled elephant in the living room or the 500-pound gorilla, we can’t ignore it any longer because the Dow Jones Industrial Average crossed the psychologically important 10,000 threshold on Wednesday. Skeptics will note that the DJIA first crossed 10,000 in 1999, has crossed it 25 times since then and remains 29 percent below its all-time peak in October 2007. But the speed and magnitude of this latest rally merits a sigh of relief at the very least – up 54 percent as of yesterday from its low point on March 9th. The rally has boosted the market for initial public offerings and bond issuance – important sources of capital for many debt-starved companies. Rising equity prices also have helped support business and consumer confidence, which is reflected in two other economic releases this week:

• Initial claims for unemployment benefits fell by 10,000 to 514,000 for the week ending October 10th. It was the lowest level since the holiday week of January 3rd according to the Bureau of Labor Statistics.
  
  
• The Census Bureau reported that retail sales overall declined 1.5 percent in September, payback for the 2.2 percent increase in August due to the cash-for-clunkers program. But sales excluding autos and gas, called core retail sales, increased 0.4 percent in September, led by general merchandise stores (up 0.9 percent), food and beverage stores (up 0.7 percent) and clothing and accessories stores (up 0.5 percent). Along with a recent report from the ICSC on chain store sales, this report raises hopes for stable to slightly higher sales in the upcoming holiday season.

Outstanding Commercial Real Estate Loans

Bank lending to commercial real estate has followed an interesting trajectory in recent years. After increasing steadily, the outstanding value of loans leveled off and began to decline in September 2008 when the bankruptcy of Lehman Brothers paralyzed credit markets. Then in the last week of September, loan volume spiked as panicked borrowers sought to tap their existing lines of credit to secure working capital.

Since that time, loan values have leveled off and begun to decline; the number of loans maturing and not being renewed is greater than new loans being issued, which are few. With bank credit shrinking and the CMBS market still largely frozen, commercial real estate values have fallen by nearly 40 percent.

Source: Federal Reserve, Grubb & Ellis

This information is provided by Grubb & Ellis' Research & Knowledge Center