Us economy encourages commercial property recovery
Photo: Janitors
The US economy has stimulated activity within the US housing market, as residential buyers become more confident and able to afford to climb the housing ladder, accompaned by the rising dollar boosting spending power overseas.
Commercial real estate, though, "usually recovers two years behind the economy", says National Association of Realtors Chief Lawrence Yun.
Some NAR members have reported a wait as long as three or four years for the market to show signs of an uptick.
Indeed, there are still headwinds facing the commercial sector, from subpar Gross Domestic Product growth and stagnating wage growth to low employment rates.
Yun notes another major hurdle facing the recovery is the lack of financing available for small investors. While large companies can access financing from Wall Street or international buyers, most financing for smaller investors still comes from regional or local banks and credit unions. Many of those small banks are hesitant or reluctant to give out commercial loans.
However, panelists at a Legislative Meetings & Trade Expo discussion this month agreed that they were confident the ongoing economic recovery would have a positive knock-on effect, albeit eventually.
"It has been a long and slow recovery, but it is happening," says Yun.
"New financial regulations for all banks, big and small, are resulting in smaller banks bearing proportionally higher compliance costs," he adds. "Why are the little guys taking the brunt of this? Maybe there should be waivers for smaller banks so they can give out the loans businesses need and help with community development.”
Sam Chandan, founder and chief economist of Chandan Economics and associate faculty member at The Wharton School of the University of Pennsylvania, emphasises the importance of the narrative currently happening among commercial real estate investors, especially when it comes to multifamily homes.
"The narrative is that Millennials love to rent; they prefer the flexibility and proximity to amenities that comes with renting rather than owning," comments Chandan. "However, that fails to take into account that while Millennials will always be Millennials, Millennials will not always be in their twenties."
The same problem is affecting other commercial markets, such as retail. Online commerce has changed the way commercial retail positions itself and attracts buyers.
"While it’s true that you will never be able to get a haircut online, the same cannot be said for buying books or groceries. We cannot assume that because people always shopped at grocery stores that they will not learn and adopt another way." he continues. "The commercial market needs to develop a narrative that evaluates how flexible people are with their shopping habits."