For this year’s version of the commercial real estate industry to differ from 2010, the economy needs one thing – jobs.
That was the message Mark Dotzour, chief economist and director of research for the Real Estate Center at Texas A&M University, told a room full of local brokers, bankers and appraisers at Wednesday’s Commercial Property Forecast Summit, held at the Germantown Performing Arts Centre and sponsored by the Memphis Area Association of Realtors Commercial Council.
Comparing the current administration to an overbeat piñata that promises more candy in return for re-election, Dotzour said everything from China’s growth to the investment environment to government austerity could further extend a real estate rebound.
Dotzour, a renowned expert in how global and national trends impact residential and commercial real estate, spent an hour addressing the economy’s three-year track record and the issues that remain before the commercial real estate market turnaround.
When the price of gold goes up, that’s a signal that the world is losing confidence in Congress to live within their means. Cash accounted for 7.4 percent of total assets last year, the highest since 1947.
“People want to own real estate for the same reason they want to buy gold – they’re convinced their savings will have no value within the next 10 years,” Dotzour said. “Now’s at the bottom to be buying and the stop will happen after our stock market explodes and blows up again.”
The problem for real estate investors is that they actually have to have some equity, and current bank loans for commercial real estate are virtually non-existent. Capital rates are falling again, and the apartment, hotel and industrial sectors are leading the way.
But the economy is turning a corner and there is evidence to prove it. Non-farm jobs increased by 297,000 in December, the Architectural Billing Index rose to about 50 for the first time since 2008 and household net worth increased to $54.9 trillion in 2010’s third quarter – up from $53.7 trillion in previous quarter.
The answers are simple, Dotzour said, it’s just a matter of whether or not the nation has the will to change.
“You and I are in the service business, we get paid to help people accomplish their goals,” Dotzour said. “You’re going to do that whether the market is hot or the market isn’t.”
A captive audience on hand for the eighth annual forecast summit, emceed and chaired by Nick Clark, also heard local experts discuss the Memphis market.
Steve Woodyard of Woodyard Realty Corp. gave the multifamily overview. The current market is seeing decreasing vacancy, low net construction, moderate to high absorption, moderate employment and flat to slightly increasing growth.
Probably more so than any other sector, the apartment industry is braced for improvement. However, the issue is the 24- to 30-year-olds moving in with friends and family and how to get them active.
Indeed, the market is facing a crisis in consumer confidence. That was at the heart of StoneCrest Investments’ Jason Polley’s retail outlook.
Meanwhile, the office sector is seeing baby steps toward recovery. John Mercer of Highwoods Properties Inc. said the majority of transactions for 2011 will be 1,000- to 3,000-square-foot transactions.
The old question used to be “Can we stay in business?” and now it’s “When can we expand?” Hopefully, increased corporate earnings will equate job growth, Mercer said.
Finally, Brad Murchison with CB Richard Ellis Memphis addressed the industrial sector, which he described as active, especially in the Southeast and DeSoto submarkets.