Economic Update – CRE Sees First-Quarter Downtick in Brokerage Activity

Commercial real estate has had that sinking feeling all year so far, and on Wednesday the National Association of Realtors quantified things: brokerage activity in the commercial sector dropped 4.8 percent in 1Q09 compared with 4Q08. Compared with the first quarter of 2008, brokerage activity is down 12.9 percent. Moreover, the NAR is predicting down time for a while yet, since real estate is a lagging indicator behind a broader economy that’s still lagging itself. “Because commercial real estate always lags an overall economic recovery, it will take some time for the commercial real estate market to rebound,” said Lawrence Yun, the organization’s chief economist, in an unsurprising statement. NAR further posited that U.S. office vacancies will average 16.1 percent by the end of this year, up from 13.4 percent last year, and that retail vacancies will hit 15.8 percent by year’s end. That’s quite a jump: At the end of 2008, 9.7 percent of U.S. retail space was vacant, according to the NAR. “Better than expected” struck again with Wednesday’s quarterly numbers from Target Corp., which didn’t show great or even improving sales, but instead profits that were “better than expected.” Target has tightened its grip on expenses since last year and has started promoting itself as a discounter–a far cry from the days when Target wanted to be thought of as better than that Arkansas-based chain whose name starts with “W,” but not necessarily as inexpensive. But cheap is chic in our time. Gregg Steinhafel, Target chairman, president & CEO, said during the company’s 1Q09 conference call on Wednesday that “our new broadcast campaign conveys the connection our guests feel towards ‘expect more and pay less’ and talks to them in an authentic Target voice that we believe will attract savvy price-sensitive consumers.” On the labor front, meanwhile, the Federal Reserve is now predicting an unemployment rate between 9.2 and 9.6 percent by the end of 2009, which replaces the central bank’s embarrassingly optimistic prediction at the beginning of the year of an 8.5 to 8.8 percent jobless rate by year’s end. The U.S. unemployment rate is currently 8.9 percent, and unless space aliens land and start recruiting human workers, the rate isn’t going to go down this year. The Fed has also re-adjusted its outlook for U.S. gross domestic product. Now it thinks GDP will contract as much as 2 percent this year, instead of the range it previously predicted, 0.5 to 1.3 percent. The central bank did not, at its April meeting, move its key interest rate from near 0 percent. Wall Street was in positive territory most of the day Wednesday, but then dipped at the last minute, with the Dow Jones Industrial Average ending down 52.81 points, or 0.62 percent. The S&P 500 slid 0.51 percent and the Nasdaq lost 0.39 percent.