Morning Briefing: Commercial market set to strengthen

by Steve Randall17 May 2016
Commercial market set to strengthen
The US commercial real estate market should strengthen in the months ahead following volatility in the economy and equity markets at the start of the year.

Global real estate firm Cushman & Wakefield has released its latest US Macro Forecast which predicts moderate improvement in the economy in 2016 and 2017 with business investment increasing.

“Property markets, which responded to the year-end 2015 and early 2016 weakness, are turning a corner,” said Rebecca Rockey, Cushman & Wakefield Head of Americas Forecasting. “Across market sectors, leasing and sales activity is firming up during the second quarter. Demand will remain strong, vacancy will tighten and rental growth will continue this year – albeit unevenly for some asset classes. These conditions will also support stronger activity in the capital markets for the remainder of the year.”

However, the office market is forecast to decline from 82 million square feet in 2015 to 67.8 million sq. ft. in 2017 due to a contraction in hiring.

Vacancies for industrial units will tighten to near-record levels at 5.9 per cent in 2016 despite headwinds for manufacturers. Construction of new units will provide more space in 2017.

Retail is also likely to see strong absorption of, particularly class-A units. The vacancy rate in this sector is predicted to fall from 8.1 per cent in 2015 to 7.5 per cent in 2017.
California median price breaks $500k for first time in 9 years
Supply issues continue to restrict home sales in California and push prices higher statewide. The median price of a home broke through the $500,000 mark for the first time in 9 years in April with sales slipping 2.6 per cent from March.

The 406,800 sales (seasonally-adjusted annualized rate) was 5.4 per cent lower than April 2015 as supply of homes was at 60 per cent of normal inventory levels.

The lack of affordability is driving sales in outlying areas of California’s major metros: “For example, Bay Area buyers who were previously seeking homes in areas adjacent to San Francisco, such as Solano and Sonoma counties, now are looking even further in Sacramento, Stanislaus, and San Joaquin counties, as Bay Area adjacent counties become less affordable,” commented Pat “Ziggy” Zicarelli, president of California Association of Realtors.

The average number of days to sell a home was down to just 27.7 days, from 29.9 days in March.
Builder confidence stable says NAHB
The confidence of builders in the market for newly-built single-family homes has held steady in May. The National Association of Builders and Wells Fargo Housing Market Index shows a score of 58 for builder confidence for the fourth consecutive month.

Expectation of sales increases rose to 65: “The fact that future sales expectations rose slightly this month shows that builders are confident that the market will continue to strengthen,” said NAHB Chief Economist Robert Dietz. “Job creation, low mortgage interest rates and pent-up demand will also spur growth in the single-family housing sector moving forward.” 

Regulation and supply of lots continues to pose challenges for the building industry though.


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