All sectors of commercial real estate are showing improvement as the economy slowly emerges from the difficulties of the past several years. NAR Chief Economist Lawrence Yun reported on May 24 that job growth and increased consumer spending have fueled rising demand for commercial space. All four major commercial sectors — Office, Industrial Retail and Multi-Family Housing — are showing falling vacancy rates and increasing revenue levels.
It can be confusing to imagine how economists can cite that job growth is behind the improving commercial real estate market but that unemployment is still the biggest problem for recovery of the housing market, but it becomes more understandable if you think about economic cycles. Spending on commercial real estate is directly tied to business’ increases — and declines — in revenue.
I recall that the credit crunch of 2008 drove a decline in commercial before we really saw it in residential sales. Today, more and more companies are showing improved performance and many are even flush with cash. If a business has survived the recession, it’s credit profile has likely stabilized and improved. Companies are spending on both infrastructure and hiring, thus the improvement in commercial and the decreasing rate of unemployment in some areas.
But most individuals I know are not tracking the rate of decrease in unemployment…they have a sense that unemployment is high, and I think it will take a significant net decrease to improve confidence. Even in stable financial situations, people who aren’t confident don’t buy houses. Among the newly hired, it takes a long time for individuals to feel confident in their new/better jobs (and maybe pay down debt) to make a commitment to buying a new house.