2.16.12–Wells Fargo Securities Commercial Real Estate Chartbook: Uncertainty Continues To Hang Over and Shape The Recovery

Summary from Wells Fargo Economics Group #CRE email:

Economic activity appeared to turn up a notch toward the end of 2011, and data for the early part of 2012 suggest that the new year has gotten off to a solid start. The apparent pickup in economic activity has done relatively little to boost the commercial real estate sector, however. Activity cooled off appreciably following last summer’s debt ceiling debacle and S&P’s credit rating downgrade, which were, in turn, followed by the intensification of the sovereign debt crisis in Europe. The dust up in the credit markets has whipped up a cloud of uncertainty that held back leasing activity and inhibited deal flow and new construction during the latter part of 2011. While glimmers of stronger economic growth are sporadically breaking through the clouds, the fog is still fairly thick.

Retail information from the chartbook:

• The retail sector, while still weak, is finally showing some signs of life. Rent growth picked up in the fourth quarter for the first time since Q1 2008, and net absorption came in strong, with the occupied stock rising by 3.18 million units. Vacancy rates, however, remained unchanged at 11 percent.
• We will likely need to see several more quarters of growth in the retail sector before new construction increases in a meaningful way. The Q4 turnaround may simply be a result of seasonal variations. The winter months are typically the strongest for the retail sector. Retail vacancy and rent data are seasonally adjusted, while the completions and absorption data are not.
• We expect slower consumer spending in the first half of this year to slow retail expansions.

Relevant retail charts from the chartbook:

Retail Price vs. Vacancy Rate

Retail Cap Rate vs. 10-Year Treasury Yield

Retail Effective Rent Growth

Retail Supply and Demand

Real Personal Consumption Expenditures

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