April 19, 2016

Shake It Off – Trbo’s 2016 Q1 Market Report

Craig Trbovich Commercial Real Estate –GTY_taylor_swift_ml_150507_16x9_992

2016 began with a shaky start as markets and oil prices nosedived, and fears grew that global economic issues might pull us into a recession. However, the economy was able to “Shake It Off” by adding more jobs and increasing wages. Stocks have fought back into positive territory for 2016 and oil prices have increased as another bump in the road was put behind us.

Looking ahead, here are a few economic indicators to keep an eye on:

US Unemployment Rate – Employers added 215,000 jobs in March but unemployment actually rose from 4.9% to 5.0%. How can that be? People are re-entering the workforce and looking for jobs again, increasing the labor participation rate. Another good sign is that wages rose 2.3% over the past year.

Gross Domestic Product – Real GDP increased at an annual rate of 1.4% in the 4th quarter of 2015 and 2.4% for the year. 2016 1st quarter results will be announced later this month.

Global Economy – Global results continue to disappoint and will probably keep the US momentum in check this year.

Inflation – Expected to remain historically low, in the 1%-2% range for this year.

Interest Rates – Will remain low with a possible increase or two this year.

US Debt – Since 2008, our national debt has grown from 64% of GDP to 104%, which is $9 trillion to $19 trillion. As a comparison, from 1966-1986, US Debt averaged 35% of GDP, and from 1986 to 2008, it averaged was 58%. Expect more talk about our growing debt  during the election campaign, especially if interest rates begin to rise. As every real estate investor knows, too much debt can be a ticking time bomb.


2016 Q1 Phoenix Leasing Statistics

Phoenix commercial real estate has bounced back over the past few years from cycle lows and has entered expansion stage.  Overall, lease rates are gradually increasing as vacancies continue to decrease, and new development and redevelopment is occurring around the Valley of the Sun.  While not a “hot” market, there is steady growth and an overall positive sentiment around town.

The Fed’s most recent Economic Conditions Index reported a 3.29% average growth for the Phoenix MSA.  Phoenix unemployment was at 4.6% in February, down from 5.4% a year ago.  And seasonally adjusted single family home permits issued for February were 1,833, up from 1,657 a year ago.


Phoenix Industrial Warehouse

The industrial market is maintaining steady activity and growth.  Over the last two years, lease rates have increased 11% and vacancy is down 15%.  And the drop in Square Feet Under Construction in the chart below should help keep the market on a healthy path in the coming quarters.


Industrial Blog Table


Phoenix Office

The office market is continuing to improve.  Lease rates have grown by 16% since 2013 when office rates bottomed out at $19.34.  And after vacancies hovered in the 20-21% range for four years, vacancies are now at post-recession lows and continuing lower.


Office Blog Table



Phoenix Retail

Retail has also continued to improve as net absorption continues higher bringing vacancies down to 9.0%.  Since 2012, lease rates have remained between $13.50 and $14.50 but now are on track to break through the $14.50 mark in the near future.  New construction for retail is on the upswing as 2015 was almost twice the average of recent years.


Retail Blog Table

Data Source: CoStar


In the next couple of weeks, 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.



In the News
About Craig