National Economy

National Economy Improving business conditions will propel job gains to 2 million positions in 2011, up from 940,000 jobs last year. Continued hiring through this year will ease the unemployment rate to the mid- to high-8 percent range.

Extension of the Bush-era tax cuts and additional liquidity measures will offer a modest boost to the economy in 2011, generating GDP growth in the 3 percent range. These measures risk infl ationary pressure, however, which could converge with turmoil in the Middle East and North Africa and escalated oil prices to pressure Fed policies to a more conservative posture.

A marked bifurcation in corporate resources and prosperity will limit offi ce space demand until small to mid-sized companies participate more in the economic expansion, the timing of which may extend beyond this year.

Commercial Real Estate Trends: 1980s

Commercial real estate supply and demand fundamentals were relatively balanced in 1980, with vacancy rates in most markets and property types below 10 percent. Changes to tax policy and banking regulations in the early 1980s, however, led to a commercial real estate construction and appreciation boom that was followed by a dramatic bust...

Commercial Real Estate Trends: 1990s

At the start of the 1990s, the commercial real estate market was still reeling from the impact of the Tax Reform Act of 1986. In addition, liquidity and capital sources had become largely nonexistent as the RTC engaged in the monumental task of disposing of or, in many cases, liquidating failed assets from former S&Ls. The combination of the real estate bust, banking woes and limited availability of capital pushed the country into a recession...

Commercial Real Estate Trends: 2000s

At the start of 2000, the federal funds rate rested at 5.5 percent, unemployment was at its lowest level in three decades, and venture capital was flowing into Internet startups, inflating thefs dot-com bubble. During the year, President Clinton signed the Commodities Futures Modernization Act (CFMA), which deregulated the derivatives markets and credit-default swaps and laid the groundwork for a surge in riskier residential lending in the years that followed. Prior to the passage of the CFMA, subprime residential mortgages comprised only 5 percent of all lending; however, by 2006, subprime loans accounted for more than 30 percent of the total...

Uncertainty Quells Recovery Momentum, but Pockets of Strength Emerging

The U.S. economy continues to record fairly spartan incremental gains, with no headline driver to propel economic growth. Additionally, the persistent “good news/bad news” theme still features prominently in the U.S. and global economies, fanning uncertainty and stifl ing consumer and business confi dence. While the economy is not fi ring on all cylinders, many economic indicators generally support expectations that the U.S. will avoid a recession and progress at a measured pace. Contributors to this outlook include upward revisions to second quarter GDP estimates, retail sales that are well ahead of prerecession levels, and private-sector job growth. In addition, corporate profi ts remain higher than the 2006 peak and strong exports are performing much of the economic heavy lifting for now.

Near Term Improving, Long Term Bright In Miami-Dade

A healthy pace of job growth will backfi ll under-utilized space in Miami-Dade in the second half of the year, while other tenants will take advantage of favorable lease terms to expand into higher-quality space. Vacancy will tick down and rents will rise modestly as a result, and prospects beyond 2011 appear solid. The area remains a targeted location for the regional operations of European and Latin American multinational firms, which provide a consistent source of space demand. In addition, Miami-Dade’s emergence as an entry point for Asian companies seeking to expand trade with Latin America will bolster offi ce demand from trade-related fi rms. Periodic surges in construction may loom in the coming years, however, as the pipeline of planned projects represents a sizable portion of existing competitive stock. The pipeline grew slightly larger recently, as local authorities granted approval to Brickell CitiCentre, a 4.6-millionsquare-foot mixed-use project with an unspecifi ed office component. No start date has been set.

Long-Term Medical Office Demand Remains Strong; Performance Lags In Sunbelt Markets

The U.S. added 1.5 million jobs over the past year, providing health insurance to many individuals who lost coverage during the recession. This trend, combined with a 2.2 percent gain in healthcare employment, drove stronger demand for medical offi ce space. At the same time, completions declined, with year-to-date deliveries down 12 percent from 2010 and 80 percent below the peak three years ago. While construction starts have started rise, caution persists. Pure speculative development has come to a halt, and commitments have already been secured for nearly two-thirds of the space under way. Over the next several years, developers will focus on multi-tenant buildings with strong pre-leasing and off-campus facilities, including treatment and surgery centers, as hospitals grow marketshare by way of off-site expansion.

Market Turbulence Fails to Sway Real Estate Confidence

Investor sentiment remains high despite economic and political headwinds.

Commercial real estate investors have not been dissuaded by the economic and political turmoil that has dominated headlines in recent months.

The latest NREI/Marcus & Millichap Investor Sentiment Survey shows only a slight decline in investor sentiment from the high of 164 that was recorded in the second quarter.

It is important to note that the current investor sentiment matches the 152 recorded in fourth quarter 2010, which at that time represented the highest level the index had achieved since the survey began in 2004.

Impediments Take Their Toll — Commercial Property Sales Show Resilience

This report offers important insights into the recent economic turbulence and how these headwinds have affected investment property. In addition to addressing current conditions and the economy, this report highlights performance trends for Apartment, Retail and Office properties. Important topics in this report includes:

• The spread between Cap Rates and Treasurys has opened to the widest level on record, offering investors rare opportunities.
• Despite numerous impediments, several factors continue to contribute to economic growth and hiring.
• Commercial Real Estate remains a favorable investment alternative in the midst of widespread volatility and uncertainty. .

Moody's/REAL Commercial Property Price Index

All Property Type Aggregate Index (CPPI) recorded a 5.0% increase in July, bringing it to 12.6% above its post-peak low.

Despite three consecutive monthly increases, the CPPI now stands only slightly above its average for the past two years.

The contraction of CMBS lending and stalled employment growth are expected to prolong the bottoming process for the market as a whole.

Apartments in the eastern region have posted a new all-time high. Office in San Francisco is within 5% of its 2008 peak. The other 14 sub-sectors reported in this issue remain 10% or more below peak levels.

Investor Confidence Surges

Low interest rates, improving fundamentals
fuel acquisition plans.

Investor confidence soared in the fourth quarter, and that positive sentiment is translating to more aggressive plans to acquire commercial real estate in 2011.

The exclusive National Real Estate Investor/Marcus & Millichap Investor Sentiment Index shows that investor sentiment has surged to a record level of 152 — a huge increase over the 119 rating achieved in third quarter. In fact, the most recent index rating tops the previous all-time high of 148 recorded in 2005.

Navigating Short-Term Turbulence; Betting on the Long Term

The Great Recession exacted an expensive toll on the commercial real estate sector. Vacancies approached or exceeded prior cyclical highs as 8.4 million jobs were lost, and sales volume plunged 85 percent from peak. Despite much hype regarding the lackluster recovery, expectations should be more realistic about what it will take to repair the damage of a recession so different from the typical downturn and much more severe than the worst contractions since the 1930s. The economy has come a long way from what seemed like a freefall, with core retail sales, corporate earnings and initial unemployment claims back to pre-recession levels and private-sector job growth totaling 1.2 million.