According to an industry insight report released by Transwestern last week, there are some interesting commercial real estate trends emerging from the first quarter of this year:
Wage growth is flat, but disposable income is up.
Unemployment has improved since the Great Recession, but employees are not receiving wage increases typical of past recoveries. However, consumer credit is 30 percent higher than July 2010, and consumer confidence is spiking. This could be due to the decline in the price of gasoline: a one-cent-per-gallon reduction in price of gas is equivalent to approximately $1 billion in consumer savings – money that can be spent elsewhere.
The national economy has recovered.
The labor market surpassed pre-recession levels, and the gross domestic product growth exceeded expectations. This growth is expected to continue through 2015, barring a geopolitical jolt. Despite these positive signs, the stagnant wage growth is a cause for concern. With the improving economy, wage growth should be more meaningful in the period ahead.
Consumer behavior is changing.
Immediately following the Great Recession, consumers opted to pay off debt rather than spend money. More recently, consumers have begun taking on more debt – total consumer debt has risen 5.0 percent since bottoming out in second-quarter 2013. This indicates growing confidence in household budgets and job security, so consumers are willing to spend more. Student debt has risen 84 percent since 2008 and totals nearly $1.2 trillion. As these students enter the work force carrying so much debt, they put off homeownership to rent instead. They also put off owning a car, partially prompting the need for companies to seek out transit-served locations.
Tenant behavior is changing.
Densification among office tenants remains strong, with companies taking approximately 10 percent less space per worker, according to a survey conducted by Delta Associates. For some industries, this reduction would likely be substantially greater. Similarly, advancements in technology are prompting retail tenants to lease less space.
Real estate is now an experience, not just a location.
The average consumer is now younger and more informed, forcing developers to adapt. Mixed-use projects are becoming more prevalent as they bring walkability, vibrancy and community together into a unique environment that appeals to the modern urban consumer.
Real estate is a preferred investment vehicle.
Annual office sales volume has risen 528 percent since the market bottomed out in 2009. Commercial real estate in the U.S. continues to be a safe haven for investors seeking higher yields with relatively low risk.
To read the full report CLICK HERE.
CRUNKLETON & ASSOCIATES