The implications of federal austerity for the region’s commercial real estate market already are being felt, with modest absorption of office space in 2011 as tenants’ decision-makers wait for more information. Some further deterioration in rents is likely in 2012, although superior properties in strong neighborhoods are likely to buck this trend.
Business uncertainty holds back the local economy
Even at the local level, companies are uncertain about future conditions, and that uncertainty has caused economic growth to slow in the Washington area. At the end of every year Delta Associates surveys regional “market makers,” asking them about expected business conditions over the next 12 months.
Consumers and businesses, nationally and locally, are still feeling pessimistic. Our survey at the end of 2011 showed uncertainty rising and confidence falling when respondents were asked about the next 12 months. Confidence reached a nadir of 5 percent in 2008, (meaning only 5 percent expected conditions to improve the following year), according to Delta’s Business Confidence Index. The confidence index is again declining, although the level remains well above the trough experienced during the Great Recession.
With the Dodd-Frank Wall Street Reform Act, the carried interest tax provision for investors, Fannie Mae and Freddie Mac and the Affordable Care Act all up in the air, it is no wonder uncertainty prevails. We expect consumers to remain cautious in spending and many businesses to refrain from leasing decisions and hiring commitments through 2012.
investors have found strong returns
Investors in Washington commercial real estate found strong returns in 2011, but little of this was driven by significant leaps in asset performance, and that improvement is not likely to be repeated in 2012 given the economic uncertainty and the fact that prices have already been driven up for core assets.
Instead, leasing of office, industrial and retail space will have to pick up for commercial real estate indicators to match their 2011 performances. Washington also experienced a slowdown in sales volume during the 2nd half of 2011 when office volume totaled $3.3 billion on 47 transactions (excluding portfolio transactions) during the 1st half of 2011, but only $2.4 billion on 39 transactions during the 2nd half of the year.
In sum, 2011 offered some great opportunities for investors but also some cautionary signs and the local growth cycle will likely be weaker than the region is accustomed to.
Christopher Dubberly is an associate at Delta Associates. Staff at Delta Associates contributed to this article. For more information, please visit www.deltaassociates.com.
Business uncertainty holds back the local economy
Even at the local level, companies are uncertain about future conditions, and that uncertainty has caused economic growth to slow in the Washington area. At the end of every year Delta Associates surveys regional “market makers,” asking them about expected business conditions over the next 12 months.
Consumers and businesses, nationally and locally, are still feeling pessimistic. Our survey at the end of 2011 showed uncertainty rising and confidence falling when respondents were asked about the next 12 months. Confidence reached a nadir of 5 percent in 2008, (meaning only 5 percent expected conditions to improve the following year), according to Delta’s Business Confidence Index. The confidence index is again declining, although the level remains well above the trough experienced during the Great Recession.
With the Dodd-Frank Wall Street Reform Act, the carried interest tax provision for investors, Fannie Mae and Freddie Mac and the Affordable Care Act all up in the air, it is no wonder uncertainty prevails. We expect consumers to remain cautious in spending and many businesses to refrain from leasing decisions and hiring commitments through 2012.
investors have found strong returns
Investors in Washington commercial real estate found strong returns in 2011, but little of this was driven by significant leaps in asset performance, and that improvement is not likely to be repeated in 2012 given the economic uncertainty and the fact that prices have already been driven up for core assets.
Instead, leasing of office, industrial and retail space will have to pick up for commercial real estate indicators to match their 2011 performances. Washington also experienced a slowdown in sales volume during the 2nd half of 2011 when office volume totaled $3.3 billion on 47 transactions (excluding portfolio transactions) during the 1st half of 2011, but only $2.4 billion on 39 transactions during the 2nd half of the year.
In sum, 2011 offered some great opportunities for investors but also some cautionary signs and the local growth cycle will likely be weaker than the region is accustomed to.
Christopher Dubberly is an associate at Delta Associates. Staff at Delta Associates contributed to this article. For more information, please visit www.deltaassociates.com.
Source: http://www.washingtonpost.com/business/capitalbusiness/delta-commercial-real-estate-forecast-is-cloudy/2012/02/13/gIQA1RT1NR_story.html
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