The US economy is beginning to grow after two years of declines in most asset classes. Opportunities to make money have been few and far between, as credit has been tight, and headline risk has dominated financial markets. In many areas of the United States, commercial real-estate vacancy rates continue to climb, but many think the market drought has peaked, and 2011 might create a number of great opportunities.
According to the National Associate of Realtors, Commercial real estate vacancy rates have already peaked and could soon top out. The NAR expects the vacancy rate for office space to rise to 16.7 percent this quarter and gradually decline to 16.4 percent by the fourth quarter of 2011. The decline in vacancy rates will likely come in tandem with lower rents. Similar to most asset prices, rentals need to fall to reach a level where demand is sparked, creating addition transactions.
The NAR current condition index in the commercial real estate sector rose 1.6 percentage points to 42.6 in the third quarter, well below a level of 100 that represents a balanced marketplace. Although the index remains weak, it has moved higher for 4 straight quarters. Vacancy rates for apartment rental buildings, are expected to fall to 5.8 percent in the fourth quarter of next year after rising to 6.4 percent in the fourth quarter of 2010. The weak commercial real estate market has been a drag on economic growth in the past two and half years, subtracting from gross domestic product in nine of the past ten quarters.
There have been a number of positive signs at the retail level, which should bode well for the commercial real-estate market. Government released Retail Sales have been on the mend. Retail Sales, which is released by the Commerce Department, has increased steadily over the past three month. General merchandise is rising at a relatively fast pace, which is good news for department stores.
The International Council of Shopping Centers and Goldman Sachs on Tuesday November 30th, released the seasonally adjusted weekly data on U.S. chain store retail sales. This number is followed by retail traders for it timely and accurate description of the retail market.
WEEK ENDING INDEX 1977=100 YEAR/YEAR CHANGE WEEKLY CHANGE
(percent) (percent)
Nov 27 506.6 3.5 0.5
Nov 20 503.9 2.8 -0.6
Nov 13 507.0 3.4 -0.1
Nov 06 507.5 3.4 1.3
ICSC Research expects same-store sales for November to increase by 3.0 to 4.0 percent. The ICSC weekly U.S. retail chain store sales index is a publication between ICSC and Goldman Sachs Group Inc. It measures nominal same-store sales, excluding restaurant and vehicle demand, and represents about 75 retail chain stores.
Additionally, consumer confidence is beginning to rise, which will help the underlying retail market which should feed into new leases for commercial real-estate. The Consumer Confidence Index rose to 54.1 in November, up from a negatively revised 49.9 in October, according to the Conference Board. This is the highest level in the past 5 months, which shows that consumers believe that economy in the US is on the mend.
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