 |
|
| NATIONAL ASSOCIATION OF REALTORS® | Videos | Store | Library | Directories | Need Help? |
| Register | Login | My Account | NRDS |
|
RCA Technology & Intelligence Briefings Interview with David Lereah— Fourth Quarter 2005David Lereah E-mail: dlereah@realtors.org Web: www.realtor.org David Lereah, Senior Vice President and Chief Economist, NAR speaks on the current and anticipated state of the real estate economy, and how it will affect all of us in our day to day commercial real estate business. Listen to the interview (mp3 format, 17MB). The Current Economic Climate 1. The U.S. economy is growing rather robustly, positive news for commercial real estate, which tends to rise and fall with the economy. 2. Commercial real estate market is responding to improvements in the overall economy - every segment of the economy is gaining momentum, particularly the job sector, plus interest rates are remaining relatively low. Inflation Outlook 1. Inflation is always a concern for real estate activity, but inflation has been calm and under control since the 1970s and 1980s. 2. There are some early signs of inflation in the CPI (consumer prices) and PPI (producer prices), partly because oil prices have exceeded expectations this year. 3. Economists often exclude the volatile components of food and energy in analyzing the inflationary environment; apart from those areas, inflation remains relatively calm, which should translate to continuing low interest rates and a smooth running economy. 4. Commercial real estate pros should find inflation to be their friend for at least the next twelve months. Pension Fund Investment 1. Although the California Public Employees’ Retirement System has been a net seller of commercial real estate lately, it should not be considered representative of all pension funds. 2. The good news associated with that selling activity is that the commercial market is able to accommodate it; a lot of buyers are creating strong liquidity, and sellers are getting premium prices. 3. Other pension funds and other institutional investors have increasingly become key players in the commercial market. NAR’s Growing Role in Commercial Real Estate 1. NAR is working to earn its place as “the voice of commercial real estate”; the organization is cooperating with its affiliates in the commercial arena, including CCIM, SIOR, RLI, IREM and CRE. 2. As the NAR Research Division provides the commercial industry with accurate, timely economic and market information, its posture in that industry will be elevated. 3. An aim of NAR is to create good measures of commercial real estate activity that can be leading indicators for the commercial real estate marketplace; the RCA is focused on facilitating this process. Tax Issues 1. The prospect of major tax reform is a big issue that could impact both residential and commercial real estate; any changes to interest expense deductions or the treatment of depreciation would be important. 2. The NAR will be monitoring progress on tax reform and insuring that commercial real estate interests have a voice in any tax package. The Industrial Side 1. Because of economic strength and the rebound of technology markets, it is no surprise that investment volume in industrial properties has risen 83%; institutional investors have moved into this arena. 2. Major U.S. ports and regions around them have benefited from increased trade with China and other nations, boosting the interest of investors. The Interest Rate Environment 1. High interest rates are not good for any interest-sensitive sector, including commercial real estate; today’s environment is still far from high, so near-term increases are not going to be too harmful. 2. The market should be able to tolerate 10-year Treasuries in the 5% range with some resulting upward pressure on cap rates. 3. Capital is still readily available, particularly debt capital for investment in commercial income properties; that condition has had the effect of driving prices up and keeping cap rates down. 4. Low cap rates drive prices above replacement costs, which encourage new construction. Commercial Markets Across the U.S. 1. The media focus on the big markets because there is a lot of interest there, but investors should look at second- and third-tier markets, which are beginning to take off. 2. An example of a second-tier market that is performing well is Charleston, SC (a thriving port). 3. The primary markets are slowing a little, but the secondary markets are likely to see considerable action over the next 2–3 years. 4. Migration patterns in the U.S. support a shift from primary to secondary regions; it is in these destinations where new business activity and job gains will be—i.e., new commercial real estate activity. Land Transactions 1. Price growth for land has been phenomenal during the real estate boom, so a number of commercial practitioners have specialized in brokering land transactions. 2. NAR and RCA are involved in the land arena; they are conducting research with the REALTORS® Land Institute to identify the type of land transactions to focus on and the parameters that are most important to members. Favorite Web Resources 1. An excellent source for economic and demographic data relevant to real estate is www.Economy.com. 2. Fannie Mae and Freddie Mac also give clues to what is happening in the marketplace. 3. www.realtor.org offers a wealth of information for commercial practitioners. The research department has a range of information including value-added data; the research tracks 57 metro areas on a quarterly basis and gives economic and housing information monthly. Looking to the Future 1. The year 2006 should be a good one; all the major measures for commercial real estate should improve modestly over 2005. 2. The economy should be growing robustly at about 4%; interest rates will rise moderately as the economy gains momentum. 3. Expect commercial vacancies to come down and rents to go up; there should be more absorption. Products and Sites mentioned by David Lereah Economy.com: www.economy.com FannieMae.com: www.fanniemae.com Freddie Mac.com: www.freddiemac.com |
  |
 Copyright NATIONAL ASSOCIATION OF REALTORS® Headquarters: 430 North Michigan Avenue, Chicago, IL. 60611-4087 DC Office: 500 New Jersey Avenue, NW, Washington, DC 20001-2020 1-800-874-6500 Terms of Use | Privacy Policy | REALTOR.com | Contact NAR | Site Map |