Just Out- Economic Growth Slows Causing These 6 Changes To Commercial Real Estate

logo trademarkedThis economy is like your car on the highway when you approach a school zone: you are still moving forward but with less momentum. Just out is  #GDP for the 1st quarter 2012 which grew at 2.2%, meaning we are still out of the severe recession of 2008, but growth is slowing compared to the 4th quarter GDP growth of 3% ( see newsletter http://www.louisianacommercialrealty.com/2012/03/gdp-and-new-orleans-commercial-real-estate/ ).  

----chart gdp 1st quarter 2012----------

For commercial real estate, this leads to these six consequences:

  1. Slower economic growth means businesses have less revenue growth and start to tighten expenses.
  2. Businesses may postpone expanding or take less space.
  3. Landlords would be smart to extend lease terms at current rates.
  4. Interest rates should fall, but banks may be hesitant to make loans or require more equity.
  5. Buyers will experience less competition for property and should be able to get good deals if they offer short due diligence periods.
  6. Tenants will be able to obtain better terms if they re-negotiate longer lease periods.

The real culprit in the news is called real nonresidential fixed investment which decreased 2.1 percent in the first quarter, in contrast to an increase of 5.2 percent in the fourth quarter 2011-specifically the following:

  • Includes equipment with service lives of 1 year or more that are normally capitalized in business accounting records.
  • Includes equipment (such as furniture and household equipment) that is purchased by landlords for rental to tenants.
  • Includes dealers’ margins on sales of used equipment.
  • Includes net business purchases of used equipment and software from governments, persons, and nonresidents.
  • Excludes certain types of equipment that are integral parts of structures and that are included in the value of structures.

 

-----1st Quarter 2012 Nonresidential Fixed Income Investment------

  Sources: US Bureau of  Economic Analysis
 

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