Professional Report - 4th Quarter 2011

Commercial Real Estate Index

SIOR Index — Commercial Markets
Plateau in Third Quarter 2011

Lawrence Yun is Senior Vice President and Chief Economist at the NATIONAL ASSOCIATION OF REALTORS®. He writes regular columns on real estate market trends, creates NAR’s forecasts, and participates in many economic forecasting panels, including Blue Chip and the Harvard University Industrial Economist Council. He received his undergraduate degree from Purdue University and earned his Ph.D. from the University of Maryland.

George Ratiu is Manager of Quantitative & Commercial Research with the NATIONAL ASSOCIATION OF REALTORS® in Washington, D.C. His research focuses on macroeconomic indicators, commercial real estate, and international investments. He writes regular columns for Commercial Property Executive and Real Estate Insights, and produces NAR’s Commercial Real Estate Outlook, which provides quarterly forecasts for the office, industrial, retail and multi-family sectors. He also manages the NAR Commercial Real Estate Quarterly Market Survey. He earned his graduate degree in Economics from Western Kentucky University.

NAR Economic Overview

With a month left in 2011, the economy is looking for some good cheer. While the third quarter brought some positive news, it barely makes for holiday sparkle. With unemployment still high, a bagful of European issues threatening financial markets, and a consumer mood that’s more attuned to Grinch than Santa, economic concerns weigh on commercial real estate markets.

Based on the Bureau of Economic Analysis’s first estimate, gross domestic product (GDP) rose 2. 5 percent in the third quarter. Mirroring second quarter’s patterns, all major components advanced, except government spending. Business investments provided a double-digit boost behind the economic advance. Business spending rose 16. 3 percent during the quarter. Businesses have accelerated spending with each successive quarter during 2011. Businesses upped their spending on equipment—transportation was up 37. 9 percent while industrial equipment rose 33. 2 percent. Notably, spending on commercial real estate gained for the second consecutive quarter, advancing 13. 3 percent.

The major driver of economic growth by scale, consumer spending remained steady, gaining 2. 4 percent during the third quarter. While at modest levels, consumers increased their spending on both goods and services. Spending on furnishings and household equipment was up 4. 5 percent, while consumption of recreational goods and vehicles rose 12. 1 percent. Cars and auto parts registered a 3. 2 percent decline. Consumers also increased their spending on financial services and insurance ( 3. 3 percent), recreation ( 3. 2 percent) and health care ( 5. 4 percent).