Craig Trbovich Commercial Real Estate –
2016 was a good, yet lackluster, year for the economy. The election was the biggest story, grabbing most of our attention and causing delay for many legislative and business decisions as we waited to see what would happen. And now, with a new administration and Republican controlled congress, expect a lot of change to happen with a focus on the economy.
How do you plan for this change? Consider buying Twitter stock as its shares will likely increase in value as Trump’s Twitter Democracy grows and continues to battle the media circus. And speaking of a circus, the Ringling Bros and Barnum & Bailey Circus is sadly coming to an end after 146 years. On a brighter note, I heard all the juggling clowns have been re-assigned as television news reporters. Kidding aside, election night was an amazing news and media event that will be long remembered.
Another big story in 2016 was the Brexit vote in June. The news was big at the time, but will be back in the headlines soon as the plan for Great Britain to leave the EU is argued for and finalized. If you have forgotten about Brexit, you will be reminded of it soon.
With all the political craziness around us, we are heading into 2017 with a much better economic outlook than a year ago. If you recall, China’s economic troubles, oil’s decline and increased jobless claims slammed the stock market in early 2016. The economy is currently on more stable ground, but there may be too much optimism in the stock market so don’t be surprised if we see a market correction in the near term.
Have a look at some key economic indicators:
US Unemployment Rate – 4.7% in December, down from 5.0% a year ago, and a slight increase over November’s 4.6% rate, which was the lowest level since September 2007. Also interesting was the 2.9% wage growth achieved for the year, the best since 2009.
Gross Domestic Product – Real GDP increased at an annual rate of 3.5% in the 3rd quarter, the largest increase in over two years. However, as I reported last summer, GDP in late 2016 would receive a boost caused by the need to replenish inventories that had declined. Look towards early 2017 results before judging whether the latest results are part of a trend or not.
Consumer Price Index – The annual increase in the CPI has averaged less than 2% since the recession. 2017 could see the first of a string over 2%.
Retail Sales – Retail sales improved during the year with November 2016 coming in at 3.6% over a year ago. Online sales continue to affect brick and mortar as Sears and Macy’s announced the closure of 200 stores nationwide and department stores nationwide lose market share. Could the end of department store shopping be in our future?
Housing Starts – While the final results for 2016 have yet to be reported, housing starts slowed during 2016 and are on pace for a 5-6% increase for the year, compared to an average of 14% over the previous 5 years.
National Debt – Since 2008, our national debt has grown from 64% of GDP to 105% of GDP; and increase from $9 trillion to $20 trillion. As a comparison, from 1966-1986, US Debt averaged 35% of GDP, and from 1986 to 2008, the average was 58%. As interest rates increase, the impact on the federal budget will attract more and more attention. For example, a 1% increase in interest on $20 trillion in debt is a $200 billion a year increase interest for Uncle Sam (and you and me).
2016 Phoenix Market
The Phoenix commercial real estate market also continued to improve in 2016, also at a slower rate possibly due to election year distractions. The overall economy in Arizona also improved as housing permits are at their highest level since 2007 and unemployment is at 5.0%, also the lowest since 2007.
Phoenix Office
The Phoenix office market remained active in 2016 as net absorption below reached its highest level since 2006. Total sales volume declined from 2015 but was still higher than any other year since the recession. Vacancies continued lower and lease rates increased to $23.35 per sf gross, closing in on the previous cycle peak of $25.74 in 2007. New development (Deliveries) was well below previous highs of 8.7 million square feet in 2007.
Vacancy and Rental Rates Absorption and Deliveries
Sales Volume Average Price Per SF
Phoenix Industrial Warehouse
The industrial warehouse market continued to be a strong sector here and nationally in 2016. New product has continued to be added and absorbed in the market. Some categories were off slightly, but vacancy and rental rate numbers continued to improve. Rental rates at $5.93 per sf, net push towards the previous peak of $6.97 in 2007. Industrial deliveries were also below previous highs of 12.8 million square feet in 2007.
Vacancy and Rental Rates Absorption and Deliveries
Sales Volume Average Price Per SF
Phoenix Retail
Average sales price per square foot increased in 2016 and vacancies continued lower, below 8% in the retail market. Construction deliveries increased by 51% in 2016 to $1.9m square feet, but still only 20% of deliveries during the 2006-2008 period as online sales continue to affect retail development. Rental rates, well below the previous peak of $20.07, grew to $14.54 per sf net as net absorption increased by 21% during the year.
Vacancy and Rental Rates Absorption and Deliveries
Sales Volume Average Price Per SF
(Source: CoStar Group, Inc.)
In the past four years, we have completed over 5,000 transactions at CPI. That is an average of over 120 transactions per month! Valley-wide, no other commercial real estate firm negotiates, prepares, and completes more transactions then CPI. For a no obligation analysis of your property, please call me at (480) 522-2799 to “TrboCharge” your investment real estate today.