In the January 2013 edition of Fundamentally Speaking, Calvin Schnure, NAREIT’s vice president of research and industry information, discussed the mixed results in the fourth quarter from the commercial real estate market and the fiscal cliff deal in Washington.
“There was some improvement, but it really wasn’t very exciting,” he said in reference to the fourth quarter performance. He added that a weak economic recovery contributed to the lackluster performance.
Schnure said that the performance was offset by the fact that there continues to be little in the way of new supply, especially in the retail sector. While there was little improvement in demand, Schnure said there was even less new supply and fewer deliveries coming to the market.
Schnure said there has been a divergence within the retail sector, with community and neighborhood shopping centers and second-tier malls not doing well. However, he said class-A malls are performing better.
“The class-A malls have posted much better performance with the stores that they have and the customers that they have coming in,” said Schnure, adding that, overall, the sector saw a slight decrease in vacancy rates and continued rent growth.
In the office sector, Schnure noted that the job growth for the year wasn’t enough to make much progress in the sector. However, he said, like with retail, the low levels of new construction helped move the sector towards slight improvement in vacancy rates and acceleration in rent growth during the fourth quarter.
While the apartment sector is starting to witness more new construction, Schnure explained that it’s not enough to keep up with the current demand. There has been a decline of 20 basis points in rental vacancies, according to data from REIS, which brings the rate down to about 4.5 percent.
“During the quarter we saw demand that was about twice the level of new deliveries. So, we are still seeing a lot of people going out and signing leases,” he said.
With the fiscal cliff deal being reached, Schnure noted that the country averted what could have been significant damage to the economy.
“But, even though we avoided that, the deal is going to be slowing economic growth,” he said. “In particular, the increase in the payroll taxes is going to take a fair amount out of people’s spending. That’s another 2 percent out of most workers’ paychecks.”