May 27, 2018

Uneven Recovery Causes Commercial Frustrations

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Uneven Recovery Causes Commercial Frustrations

Commercial practitioners are right to be frustrated, NAR Chief Economist Lawrence Yun said at the REALTORS® Conference & Expo on Thursday afternoon.

“Commercial real estate was not the cause of the downturn,” Yun told attendees of the Commercial Economic Issues and Real Estate Trends Forum. “But it is commercial real estate that is suffering the collateral damage.”

Yun said most commercial sectors are recovering sluggishly, along with the overall economy.

“The pace of expansion has been extremely frustrating,” he said. “We’ve created 7 million jobs in the past four years, but this is in the aftermath of 8 million job losses, so we are still in a hole.”

Yun noted that certain states — North Dakota, Utah, Idaho, Texas, and Colorado — are growing jobs faster than others. Though the overall unemployment rate continues to fall, the labor participation rate has been stubborn. Fifty-eight percent of adults have jobs; Yun said he’d like to see that number somewhere around 62.

The unevenness of the recovery is not just geographic; there’s also a data disconnect. Yun said the middle class is not being included in the recovery, resulting in hard research that doesn’t match the feelings commonly expressed about the economy.

“We have a very strange mind-set in America today. We have record high net worth, but most Americans will say things don’t feel right,” Yun said, adding that he sees those frustrations reflected in low consumer confidence.

That same malaise is affecting commercial real estate practitioners, too. Yun said that though transaction volume is up 27 percent year over year, he doesn’t see the data reflected in the 2013 Commercial Real Estate Lending Survey. Commercial deals topping $1 million began improving four years ago, while smaller transactions under the million-dollar mark just started turning around this year.

The increases in volume are attributed to “expensive properties that are priced more than $2 million,” Yun said. “Most of our REALTOR® commercial members are involved in smaller property transactions.”

Still, Yun stressed that even though many do not fully feel the recovery, there are reasons for optimism.

“The bottom line is that commercial real estate is recovering,” he said. “If you survived though the downturn, then you are in much better shape.”

—Meg White, REALTOR® Magazine

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