Good News Friday . 7.29.11

Cheer Up!

With the political circus in Washington, you may be feeling less than cheerful. But even so, I was struck by the results of last week’s reader poll on Globe Street asking whether we are closer to a double-dip recession than we were last year. Nearly half of the respondents said yes, and a third said they had no idea and no one else did either. Only 18 percent were optimists, saying the fear is overblown.

I’m surprised by this response because the commercial real estate industry, which Globe Street covers, is performing well considering the weak economic fundamentals. We’ve covered the details in other recent reports, but to summarize:

· The leasing markets improved across the board last quarter, defying the economic soft patch. Vacancy rates fell by 40 basis points for office, 30 for industrial, 20 for apartments and 10 for retail. Construction starts remain low, which will give the markets time to heal. Asking rents are flat, but we are seeing mini-spikes in a few markets, mostly tech-related. Effective rents for higher-quality properties are firming as landlords lighten up on concessions.

· Investor demand continues to heat up. Demand remains strongest for core assets in primary, supply-constrained markets, and it is spreading to secondary and tertiary markets and to riskier properties, i.e. older, more empty space, a non-prime location, etc. Transaction volume is up 116 percent compared with the first half of last year, and cap rates are down from 30 to 100 basis points depending on the property type.

· REITs continue to run circles around the S&P 500, Year-to-date through yesterday, the Dow Jones Equity REIT Index was up 8.9 percent compared with 3.4 percent for the S&P.

For the record, my vote on the double-dip question is “no way, the pundits are overthinking it.” But with second quarter GDP announced this morning at just 1.3 percent and first quarter GDP revised down to 0.4 percent, I’m reminded of an important tenet from the economist’s creed: If you’re right, try not to look surprised.

Have a great weekend.

Best regards,

Bob

Robert Bach

SVP, Chief Economist

Grubb & Ellis

312.698.6754

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About CRE Northwest

Specialist in office & investment real estate in Seattle & the Eastside
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