Apex Commercial's Blog

Labor Market Recovery Rates

Grubb & Ellis|Apex Commercial — Thu, 22 Dec 2011 16:36:29 +0000

Grubb & Ellis examined metropolitan areas with populations of 1 million or more to determine their labor market recovery rates – the percentage of jobs lost to the recession in each market that has been recovered through Nov. 2011. Six of the top 10 markets are in three adjacent states – the four big Texas metros (#2 Houston, #5 Austin, #6 San Antonio and #10 Dallas-Fort Worth) plus #3 New Orleans and #4 Oklahoma City. Energy is a big driver in this region as well as technology in Austin and ongoing reconstruction projects in New Orleans. The other four top markets are in the Northeast: #1 Pittsburgh and, in the 7th through 9th positions, Boston, Rochester, N.Y. and Washington, D.C. Education and healthcare are big drivers of growth in these metros plus energy in Pittsburgh and the public sector and related non-profits and consultants in Washington, D.C. At the other extreme, Birmingham, Ala. has not recovered any jobs while the recovery rates in Cleveland and Atlanta are just 2 and 4 percent, respectively. The recovery rate in the U.S. overall is 28 percent. Look for continued, modest expansion in the labor market next year at roughly the same pace as 2011 – 125,000 net new payroll jobs per month. Metros with above average shares of energy, commodity, health care, education and technology businesses should grow more rapidly than average.

Source: U.S. Bureau of Labor Statistics, Grubb & Ellis

Personal Income & Personal Consumption Expenditures

Grubb & Ellis|Apex Commercial — Fri, 02 Dec 2011 16:01:11 +0000

Consumer spending increased by a surprisingly weak 0.1 percent in October while personal income surged by 0.4 percent. To some extent this is payback for the past three months when spending increased at a faster pace than income. The saving rate rose slightly from 3.3 percent in September to 3.5 percent in October. It was 5 percent as recently as June. The low saving rate combined with a strong kickoff to the holiday shopping season on Black Friday (preliminary sales gains up as much as 10 percent from last year) suggest that October’s weak patch in spending could be short-lived. Consumers are responding to pent-up demand and promotional pricing from retailers. The fact that consumers are loosening up despite the weak labor market, worrying headlines from Europe and dismal confidence readings bodes well for the economy heading into 2012. If consumers stay in the game, the retail property market could make a better showing next year than many analysts anticipate.

Sources: U.S. Bureau of Economic Analysis, Grubb & Ellis

Monthly Job Change

Grubb & Ellis|Apex Commercial — Fri, 11 Nov 2011 18:17:09 +0000

The October employment situation report from the Bureau of Labor Statistics paints a middling picture of the labor market. The report is consistent with other recent indicators – retail sales, the ISM indexes and GDP – showing that the economy has not fallen into recession, but there is little to suggest that it is about to accelerate enough to begin absorbing the 5.9 million long-term unemployed (27 weeks and over). The report is based on two surveys. The establishment survey indicated that employers added 80,000 net new payroll jobs – 104,000 in the private sector offset by a loss of 24,000 government jobs. The gains were broad-based. Professional and business services led with 32,000 including 15,000 temporary positions, often viewed as a prelude to full-time hiring. Education and health services, always a stalwart, added 28,000. Leisure and hospitality gained 22,000 while retail trade increased by 17,800, a sign of retailer optimism as the holiday season approaches. Weekly hours worked was unchanged at 34.3, and average hourly earnings rose by a modest 0.2 percent. The household survey revealed that unemployment ticked lower from 9.1 to 9.0 percent. Based on a different methodology, the household survey measured an employment gain of 277,000 last month. The number of employed in the household survey has increased sharply in the last three months by an average of 335,000. The household survey is based on a smaller sample and therefore more volatile than the establishment survey. Nevertheless, it could suggest the expansion of start-up businesses, which the establishment survey does not attempt to count. Overall, the outlook for slow economic growth remains intact, suggesting that interest rates will stay low indefinitely. For commercial real estate, this implies continued strong demand from investors but only a slow improvement in leasing market fundamentals.

Sources: U.S. Bureau of Labor Statistics, Grubb & Ellis

Commercial Real Estate Vacancy Rates

Grubb & Ellis|Apex Commercial — Fri, 21 Oct 2011 15:11:21 +0000

All sectors of the property leasing market are recovering, some more quickly than others. Third quarter vacancy rates fell by 30 basis points for the office and apartment sectors and by 10 bps for the industrial and retail sectors. The apartment market has been recovering rapidly since mid-2010 thanks to the unresolved foreclosure crisis, tight mortgage lending standards and the tarnished reputation of homeownership. The office vacancy decline is a surprise considering that job creation remains sluggish and shadow space is still a problem. Industrial demand has been strong enough to trigger new construction starts, and the market continues to plough ahead despite manufacturing conditions that have softened since the spring. Retail has been the most sluggish of the major property types due to the well-documented headwinds facing consumers, but certain sub-types are outperforming, notably anchored centers and fortress malls in mature, high-income trade areas. Although vacancy rates are declining, landlords still do not have much pricing power since the market recovery remains in the early innings with the exception of apartments. Expect the recovery to continue at an uneven pace as the economy struggles to stay out of recession.

Sources: CoStar, Reis, Grubb & Ellis

Total Consumer Credit

Grubb & Ellis|Apex Commercial — Fri, 14 Oct 2011 17:03:55 +0000

After rising for 10 consecutive months, consumers took a breather in August as the amount of credit outstanding dipped by $9.5 billion or 0.4 percent, ending the month at $2.44 trillion. Consumer credit has two main components: nonrevolving credit, which includes loans for automobiles, mobile homes, education and a few other categories, and revolving credit, primarily credit card loans. Nonrevolving credit, which accounts for slightly over two-thirds of the total, had expanded for 14 consecutive months before August. Revolving loan balances hit a fresh cyclical low in August as households and lenders continue to exercise caution in using and extending credit, respectively. Mortgage debt on one-to-four-family residences, which is not counted as consumer credit (and is not included in the chart) continues to decline, falling $54 billion in the second quarter to $10.4 trillion. Overall, consumers continue to deleverage but with some differences by type of loan. Mortgage debt has been falling steadily, nonrevolving credit has been rising until recently, and revolving credit has moved little this year. Consumer credit data are volatile and subject to revision, but the August decline may not be a fluke as a number of economic indicators came in weaker than expected during the month. Lack of growth in revolving credit is one factor holding back retail sales, which in turn is keeping a lid on retail leasing activity. On the other hand, the ongoing decline in outstanding mortgages is a bullish sign for apartment leasing.

Source: Federal Reserve, Grubb & Ellis

Consumer Confidence

Grubb & Ellis|Apex Commercial — Fri, 30 Sep 2011 16:03:00 +0000

Under normal circumstances, consumer confidence surveys are not very informative. They do not correlate well with consumer spending because consumers respond to what is going on rather than driving it. But in the “new normal,” consumer and business confidence appears to be playing an unusually large role in the recent bout of economic and financial market weakness. The S&P 500 plunged sharply during the first several trading days in August when the debt ceiling standoff was coming to a head, and it has been extremely volatile since then. Likewise, consumer confidence plunged in July and August according to the Thomson Reuters/University of Michigan consumer sentiment survey, reaching a level just above the bottom registered in November 2008 when the financial crisis was in full bloom. Although the survey’s September reading rebounded slightly, the three-month moving average continues to point downward. Recessions can be triggered by rising inflation and interest rates, by a bursting market bubble, or by an exogenous event such as the Gulf War in 1990-91. Typically, falling consumer and business confidence is an effect of a recession, not a cause. But in the current environment, falling confidence – particularly in the ability of policymakers here and in Europe to deal with sovereign debt issues – appears to be causing the weakness. Most surveys of retail spending indicate that consumers have not yet given up and retreated into their bunkers despite falling confidence, which raises hope that the economy can skirt a recession. Commercial real estate, though a lagging indicator, is affected by the loss of confidence; tenants need to feel confident in the economic outlook in order to pull the trigger on a multi-year lease, and the same holds true for investors contemplating an acquisition with a multi-year holding period.

Source: University of Michigan, Grubb & Ellis

10-year Treasury Yield, 2011

Grubb & Ellis|Apex Commercial — Fri, 16 Sep 2011 14:43:58 +0000

The yield on the 10-year Treasury note ended Friday at 1.93 percent, the lowest level since at least 1962 when the Treasury Department began publishing daily rates. The decline of approximately 150 basis points so far this year has been driven by fear that policymakers in Europe and the U.S. are unable to manage the overhang of sovereign debt, which threatens to destabilize the global banking system and tip the European and U.S. economies into recession. The bond market also is reacting to “Operation Twist,” the potential for the Federal Reserve to drive long-term rates even lower by selling shorter-term debt and using the proceeds to buy longer-term debt. Lower rates would encourage businesses to borrow and take on more risk, although the results are likely to be modest as long as business and consumer confidence remains depressed. The Fed’s strategies to ease monetary policy have been likened to pushing on a string. Businesses are concerned about final demand and the opaque regulatory climate, and lower rates may not be enough to get them back in the game. In normal times, low Treasury rates are good for commercial real estate, encouraging lenders to ease terms and making property cash flows and REIT dividends look more compelling for investors. But this is the “new normal,” a period when ultra-low interest rates are a sign of fear as investors pile into low-risk Treasury debt, pushing yields to record lows. This heightened aversion to risk makes safer commercial real estate assets look appealing, especially apartments and higher-quality properties secured by long-term leases with no near-term rollover risk. But the uncertainty is not good for the overall commercial real estate market, which needs business confidence to generate leasing activity and fill vacant space.

Source: Federal Reserve, Grubb & Ellis

Philadelphia Fed Survey

Grubb & Ellis|Apex Commercial — Fri, 26 Aug 2011 15:21:20 +0000

Several economic indicators began flashing yellow last week, and one of the most worrisome is the monthly Business Outlook Survey from the Philadelphia Federal Reserve, which tracks manufacturing conditions in central and eastern Pennsylvania, southern New Jersey and Delaware. One of several regional manufacturing surveys, the Philly Fed report does not carry as much weight as national indicators such as the ISM manufacturing index, but last week’s release showed an eye-popping plunge in activity among the region’s manufacturers this month. New orders declined sharply and inventories rose, both of which will weigh on future production. The sudden deceleration seems related to deteriorating economic conditions in Europe, an important destination for U.S. exporters. Slipping confidence among U.S. consumers and businesses also played a role. The survey results are consistent with the Empire State Manufacturing Survey released earlier last week by the New York Federal Reserve. Activity shrank for a third consecutive month in New York and in two of the past three months in the Philly survey. Manufacturing has been one of the few economic bright spots, so any weakening would hurt the broader economy. In commercial real estate, the industrial property category would be most at risk if the manufacturing slowdown continues.

Source: Federal Reserve, Grubb & Ellis

Consumer Price Index

Grubb & Ellis|Apex Commercial — Fri, 22 Jul 2011 13:57:43 +0000

The consumer price index fell by 0.2 percent in June, pushed down by a 4.4 percent decline in energy prices. However, the core CPI, which excludes the volatile food and energy categories, increased by a larger-than-expected 0.3 percent for a second consecutive month. Rising vehicle and apparel prices, which gained 1.0 and 1.4 percent, respectively, were behind the increase in core prices. Vehicle price increases resulted from supply chain disruptions related to the disasters in Japan, and the spike in apparel prices is tied to the high price of cotton on the global markets. These spikes are unlikely to be repeated; vehicle supply chains are returning to normal, and cotton futures are lower. Looking at 12-month trends, the CPI is up by 3.6 percent while the core CPI has increased by 1.6 percent. Core CPI remains well within the Federal Reserve’s informal target rate of 2 percent, although it has been increasing steadily since last October when it hit a low of 0.6 percent. For commercial real estate, the gradual increase in inflation may provide some cover for landlords looking to raise rents as market conditions tighten. Overall inflation still looks tame, but this could change if elected officials fail to raise the debt ceiling, prompting the ratings agencies to downgrades U.S. Treasuries. That scenario could trigger a sudden and unwelcome increase in interest rates, putting upward pressure on inflation.

Source: U.S. Bureau of Labor Statistics, Grubb & Ellis

Real Disposable Personal Income & Personal Consumption Expenditures

Grubb & Ellis|Apex Commercial — Thu, 07 Jul 2011 19:07:58 +0000

Personal income and consumer spending growth were weak in May. Real disposable personal income (income less taxes, adjusted for inflation) rose by a modest 0.1 percent over the month, helped by proprietors’, dividend and rental income even as wage growth remained sluggish. Real personal consumption expenditures fell 0.1 percent for a second consecutive month, restrained by high energy and food prices plus the weak labor and housing markets. Help could be on the way, however, in the form of stronger GDP and employment growth in the second half of the year coupled with falling energy and commodity prices. Erratic spending growth this year is keeping a lid on shopping center leasing activity and rental rates with the exception of centers targeting upscale retailers and consumers, who have benefited from the rising stock market. Because consumer spending accounts for 70 percent of GDP, stronger spending growth in the second half of the year would benefit not only retail but other property types as well.

Source: U.S. Bureau of Economic Analysis, Grubb & Ellis