Commercial Real Estate Withstands Weakening Economy

Posted October 5th 2011
CCIM.com Newscenter

“Operation Twist.” The measure will “keep long-term Treasuries at record lows and to spur lending, a plan that could offer commercial real estate investors unique opportunities,”

 It seems unlikely that the U.S. will face another recession, according to a recent research brief by Hessam Nadji, managing director of research services at Marcus & Millichap. The U.S. gross domestic product grew 1.3 percent in 2Q11, and new claims for unemployment dropped to 391,000.

Despite the positive signs, “caution and uncertainty [remain] elevated as stock market volatility, yet flattened job growth and GDP trends have largely disappointed,” Nadji says. This will present challenges to the office sector, which saw only 1.2 million sf of absorption in 2Q11. However, primary markets such as Seattle, Chicago, and Washington, D.C., will continue to experience demand, and corporate expansions in major gateway cities are expected to contribute to increased absorption in 2H11.

The Federal Reserve, anticipating further stagnation, has launched “Operation Twist.” The measure will “keep long-term Treasuries at record lows and to spur lending, a plan that could offer commercial real estate investors unique opportunities,” Nadji notes. In 3Q11, overall commercial capitalization rates surpassed the 10-year Treasury by 600 basis points on average, encouraging increased risk tolerance among long-term investors. 

The multifamily sector will continue to benefit from slow home sales. Nadji predicts that the supply/demand balance will remain favorable through year-end, as the vacancy rate is expected to fall to 5.6 percent in 4Q11.

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