Economy Watch: Modest Gains for CRE Predicted in 2012

Multifamily housing continues to be the best-performing commercial real estate segment, with rental rates and occupancy increasing, while supply remains relatively minimal.

By Dees Stribling, Contributing Editor

In its 2012 National Real Estate Forecast released this week, Grubb & Ellis is predicting growth for U.S. commercial real estate properties, but not robust growth, which is pretty much how the company believes the wider economy will perform as well. But there will relative winners and relative losers in CRE. According to the company, property sectors will experience growth in this order, from best-performing to worst-performing: multifamily housing, hospitality, industrial, retail and office.

During 2011, multifamily housing went from strength to strength, the report notes, with effective rental rates and occupancy rates increasing but only 38,000 units added to the entire U.S. market. “Tough qualifying standards for prospective home buyers and the growth of the 18- to 34-year-old age group ensure that this sector will continue to be one of the most popular and sought-after commercial real estate investments in 2012,” the report says.

At the other end of the spectrum, the office market can’t catch a break. Not in 2012, anyway. “Landlord-pleasing increases are unlikely to occur prior to 2013 or 2014, when the market reaches equilibrium,” Grubb & Ellis reports. “Class A properties will continue to outperform the general market, with only a small handful of markets tightening to the point where opportunities arise for owners of Class B properties to cut concessions, raise rental rates or upgrade their properties’ status.”

U.S. manufacturing grows, autos have strong year

Though America doesn’t make things the way it used to, what’s left of manufacturing has been a more-or-less bright spot in the economy since the darkest days of the Great Recession, and the trend continues. In November 2011, U.S. factory orders gained 1.8 percent month-over-month, according to the U.S. Department of Commerce on Wednesday, a bounce back from a 0.2 percent drop in October. Aircraft, autos and metals led the way; orders for electronics were down.

Part of the growth is attributed to Americans’ appetite for autos, which has also spiked recently, growing 8.7 percent in December. In fact, all of 2011 was a good year for car sales in the United States, gaining 10 percent compared with 2010 for a total 12.8 million units sold. In short, it was the best year for auto sales since before 2008. All three U.S. car makers, GM, Ford and Chrysler, increased their market share for the first time in 20 years.

In other consumer economy news, the relatively unknown Standard & Poor’s GSCI Agriculture Total Return Index of eight commodities dropped 16 percent in 2011, the biggest decline since 2008. That fact might be little-known to consumers, but it means that food inflation will probably moderate going forward. The biggest drops were in cocoa and sugar, but wheat, soybeans and coffee were also down.

Wall Street in wait-and-see mode

Wall Street seemed to be nervous on Wednesday ahead of the parade of employment numbers slated for release later this week, beginning on Thursday with the private Challenger Grey & Christmas job cut estimates and ADP’s hiring estimates, followed later by initial jobless claims for the week and then the capstone of employment reports, official non-farm payrolls and unemployment data from the government on Friday.

The equities markets dropped considerably in early trading, but ended mixed on Wednesday. The Dow Jones Industrial Average gained 21.04 points, or 0.17 percent, and the S&P 500 gained a minuscule 0.2 percent. The Nasdaq was down an even more minuscule 0.01 percent.

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