Category Archives: Market Trends

Economic Outlook 2Q 2013

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The future looks bright for the nation’s “sunbelt” cities, including Phoenix, Miami, Las Vegas, Houston and Dallas. While hit especially hard by the recession, these secondary business markets show significant signs of promise. While vacancies overall may be elevated, Phoenix offers the ideal combination of low operating costs and a pro-business government environment to help carry it well through the rebound. The Valley is close to replacing Philadelphia as the fifth largest city in the US, and in 2011 Forbes ranked it as a top 10 boomtown that would flourish in the coming decade.

The first quarter of 2013 started off slower than anticipated, and Q2 continued to set the tone for slow steady growth. Overall, the Phoenix CRE market has steadied; vacancy rates in all sectors have declined or remained flat since Q1, and are down significantly since 2012. Net absorption remains positive in all sectors, with retail and office showing improvements since Q1. Leasing activity fell modestly in the office and industrial sectors in terms of square footage leased and overall transactions, while retail continues to recover posting positive indicators in these areas. Rental rates remained relatively flat overall, seeming to settle from previous lows. While overall the news isn’t as aggressively positive as desired for 2013, the consistency shows that the market is stabilized and is ready to begin its advance to previous levels.

The Arizona unemployment rate has dropped to 7.8% as of May, down from 8.4% in May of 2012. According to the State Department of Administration, 8 of 11 major sectors in Arizona added jobs last month, with construction leading the way with 6,200 new jobs. In the Phoenix Metro Area, unemployment continues to decline, down to 6.6% as of April. The increase of construction jobs follows the upward trend in the housing market, always a key precursor of a reviving commercial market. Residential active listing supply is 20% more this May year-over-year, but continues to fall. Distressed supply is down 29% which translates to a much healthier housing market than 12 months ago. The median sales price is up 30% from last year for single family homes, while foreclosure starts were down 60% from April 2012. Another important sign is that this growth is continuing even without the investors that saturated the market during the Phoenix housing market lows; purchases by investors dropped to just 27% of all purchases in April, down from 34.5% in April 2012, and is the lowest percentage seen in several years. These numbers hold evidence to the quickly expanding new home market that was thought to be lost in the hard hit Phoenix Valley; year-over-year as of April, new home sales were up by 27% and sales of previously owned homes that weren’t distressed rose by 72%. Conversely, sales of bank-owned homes fell by 53%, short sales fell by 44%, and investor flipped homes fell by 47%. While the numbers are staggering, long term the Phoenix housing market is self-adjusting after the sharp highs and lows it has seen since the rise began in 2004.

Nationwide, confidence is returning in the housing market. This year provides homeowners perhaps the last opportunity to lock in low interest rates for years to come as rates are sure to rise as the economy continues to recover. As Dr. Peter Linneman, NAI Global Chief Economist states, “By early 2014, many potential home buyers will ask themselves, ‘Should I buy now before it’s too late?’ We expect housing induced growth to promote hiring throughout the nation. As a result, a broader cross-section of metropolitan areas will reverse their trend of lagging behind the job recovery of the Gateway markets (New York, San Francisco, Los Angeles, Boston, Washington, DC).” With the nationwide housing market finally experiencing a strong level of recovery, the commercial market is poised to take its turn on the main stage.

2013 Global Economic Outlook: Where are the Risks and Opportunities?

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UNITED STATES
With the U.S. economy subject to economic martial law and our political leaders unable to achieve a consensus, one cannot expect growth faster than the current pace. A failure on the part of government to arrive at meaningful spending cuts has left an environment of uncertainty for global financial markets. Hence, alarmingly high unemployment and low real GDP growth will continue through the remainder of the year. Low interest rates and continued QE by the Federal Reserve has done nothing to spur the economy. In fact, it is harming the economy. While the Fed imposes its own economic martial law and the government continues its trend of reckless spending, it is common taxpayers (especially savers) who are left footing the bill.

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Q1 2013 – NAI Retail Market Report

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Despite a sluggish start to the new year, the Phoenix retail sector continues to post strong numbers as it waves goodbye to the lowest points of the recession. With vacancy dropping and net absorption continuing to post positive figures, the market is making up ground. New retailers moving into the market place show the increased interest in the Phoenix market. The Portillo Restaurant Group, an Illinois based quick service restaurant that brings with it a large following, opened a location in Scottsdale and have a second location slated for Tempe Marketplace. Conn’s Home Plus, a home electronics and furnishing chain originally from Texas, recently opened a location in Tucson and has plans for two Phoenix locations opening this summer including one in Arizona Mills.

Vacancy continued to decline in the retail sector, dropping to 11.0% in the first quarter of 2013, down a full percentage point year over year when the vacancy rate sat at 12% in Q1 of 2012. Retail sales volume also reflected the buzz of increase in the local retail market; Q1 of 2013 totaled an impressive $109 million. This is up considerably from the $67 million posted in Q1 of last year, and is the largest sales volume seen in the first quarter since 2008. Average rental rates, while down slightly this quarter to $14.29, also seem to be leveling out from the rapid declines seen during the recession, which could be part of the overall market correction being felt in the retail market.

Net absorption fell this quarter to 484,073 SF of space absorbed, down significantly from the impressive 2012 year end of over 1.5 million SF. While dips in absorption numbers during the first quarter are common place as the market rebounds from the increase during the holiday season, Q1 of 2012 posted significantly higher SF of space absorbed at 762,725 SF. Leasing activity also lagged during the first quarter of 2013; total deals fell to 437 in contrast to Q1 of 2012 when 607 deals were completed, and square footage leased totaled just over 1.2 million down from almost 2 million in the final quarter of 2012. While leasing has seen a slight lull this quarter, the market seems to be stabilizing overall, steadying the frenzy to new space seen during 2012.

Over 200,000 SF of space remains under construction this quarter in addition to the 147,751 SF of new space delivered so far this year. The top lease transactions of the quarter included a 26,115 SF lease to Arizona Humane Society at 4240 W Camelback Rd, a 25,740 SF lease to Goodwill at 860 E Warner Rd, and a 25,261 SF lease to Sprouts at 6760 W Deer Valley Rd. The top sales transactions so far this year include a $7.6 million 14,820 SF space in Vistancia Marketplace at 28516 N El Mirage Rd in Peoria, occupied by Walgreens, and the $6 million sale of 1661 S Alma School Rd, a 120,026 SF space currently occupied by Roomstore Furniture.