Craig Trbovich Commercial Real Estate –
As positive as we like to be, there is a lot of caution out there. Positive results continue to be looked at with skepticism; naysayers predict doom. Is it just a continuation of our up and down recovery or is there need for real concern? Probably a little of both. Our economy has been like a slow train climbing the mountain of recovery. It’s been an uphill battle against global weaknesses, poor real wage growth, increased taxes, and an enormous US debt, to name a few. Are we still climbing the mountain or have we lost power and starting to slide backwards? When will our slow train economy get over the hump and start the downhill momentum towards “escape velocity”?
I believe we will continue the up and down results over the next few quarters and I hope we reach escape velocity sooner rather than later. Here is a look at few economic indicators that are important to track:
US Unemployment Rate – 5.5%. Continuing lower, but real wage growth has remained weak.
Gross Domestic Product – 2.2% in the fourth quarter of 2014, 5.0% in the third quarter. 2015 first quarter’s initial estimate is due out on April 29 and is expected to be in the 2%-3% range. However, there are signs the economy is improving, which may show up in second and third quarter results.
Federal Debt – As a percentage of GDP, US debt has steadily risen from a 30-40% range in the 1970’s and 1980’s to over 100% recently. That is very disconcerting. And the prospect of rising interest rates could lead to huge interest payments on that debt, which could lead to higher taxes, which could lead to a drain on our economy, which could…well, you get the idea.
Inflation – Inflation has been near zero recently as oil prices dropped in late 2014 and early this year. Oil prices have stabilized for now so inflation should show some uptick as newer reports come out.
Interest Rates – Earlier this year, it appeared a summer hike in interest rates was imminent. But with recent inflation well below the Fed’s 2% target, new inflation reports in that range are likely needed before the Fed begins to raise rates.
2015 Q1 Phoenix Leasing Statistics
The Phoenix commercial market and economy continue the slow and steady comeback. Arizona’s unemployment remains below 6.0% and annual economic growth continues in the slow growth range of 2.0%-3.0%. As a comparison, Arizona’s economy generally grew in the 8.0%-9.0% range during the 1990’s.
Phoenix Industrial Warehouse
The Phoenix industrial market is showing a steady growth with new square feet being developed and absorbed, maintaining a vacancy rate just below 11%. Nationally, industrial vacancy rates were at 7.0% at the end of the first quarter.
Slow growth continues in the office market, with relatively high vacancy rates and minimal new development. Phoenix’s office vacancy is at 17.1% compared to 10.9% on a national level showing there is plenty of room for improvement in the Phoenix office market.
Retail has also continued to improve with vacancy creeping lower as net absorption continues. Lease rates have declined slightly over the previous quarters and stood at $13.84 at the end of the quarter on a triple net basis. Nationally, retail asking rates were at $14.96 and vacancies are at 6.0%.
In my next post, I’ll take a closer look at year-to-date investment sales and discuss emerging trends. For a no obligation analysis of your property, please call me at (408) 522-2799 to “TrboCharge” your investment real estate today.