Today’s economy shouldn’t be referenced as the second ‘Great Depression’. It should be the ‘Great Standstill’. Between an increasingly flat economy and the continuation of the credit crunch, the overall commercial real estate market is idle. Business owners and real estate investors have little confidence in the economy so they are sitting on the sidelines when it comes to making a new purchase. Unless pressed to sell, sellers are holding their assets if and when the economy improves. Financing for commercial real estate is available but only for the better-risk properties and for the better-credit borrowers. Banks want to make loans but won’t risk their funds.
Unemployment & Vacancies
The unemployment rate is good way to track the health of the commercial real estate market. High unemployment will typically show higher than normal vacancies and decreasing rents and the opposite is true of low unemployment.
The unemployment rate across the country is about 9.7%. Massachusetts’ unemployment rate is about 9.2%. The state rate peaked during the economic downturn in January 2010 at about 9.5%, so there has been state-wide job growth since then.
The region south of Boston has an unemployment rate just above the state average of about 9.3%. When state unemployment was at its highest in January 2010 the unemployment rate in the region was about 10%. Ironically, vacancy rates in the region for industrial and commercial space have been at their highest levels in several years since January. The industrial vacancy is now at 17.3% and the office vacancy is now at 18.5%.
Somethings Gotta Give
Job growth will be closely watched in the commercial real estate market. Once companies start hiring again and new companies begin to emerge the vacancies will decrease and we will be on our way to a recovery. Modest job growth is expected this year but for a true recovery we need noteworthy growth.
