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CRE Finance World, Winter 2013

A Modest Outlook for Commercial Real Estate for manufacturing, the West and the South will outpace the rest of A tepid rebound in retail construction was led by auto retailers in the U.S. in office-using employment on the strength of burgeoning 2011 as federal support for the automotive industry and pent-up technology-using industries and favorable demographics driving demand spurred sales. Surpassing automotive retail construction increased demand for finance and other services (see Chart 9). since the end of 2011 has been the food/beverage and multi-retail components of retailing. Multi-retail includes general merchandisers, Chart 8 shopping centers and shopping malls. The composition of retail Office Demand Will Recover First space will likely evolve away from big-box stores toward smaller spaces amid increasing local restrictions on large retailers and more intense competition from internet retailers. Facing a long time period for the housing market to replace lost equity, as well as a higher personal saving rate, retail will undergo the longest recovery of all major CRE components. The pace of retail sales growth has slowed since the recovery began, and will moderate further in the near term below the levels reached during the housing boom (see Chart 10). The South and Midwest, which avoided the worst of the housing crash and falling home equity, will outpace the rest of the U.S. in retail employment growth through the end of 2014. Sources: BLS, Moody’s Analytics Chart 10 Slow Recovery Ahead for Retail Chart 9 South, West Lead Office Job Creation Sources: BLS, The Conference Board, Moody’s Analytics Sources: BLS, Moody’s Analytics While consumer confidence lags, household deleveraging does provide some optimism for consumer spending and thus demand Retail for retail space. Total retail-related consumer credit balances The deep business cycle hurt demand for new retail space similar (bankcard, consumer finance and retail) are on the decline; however, to that for office space. Retail suffered the largest peak-to-trough the rate of contraction is moderating. In addition, after peaking decline in construction put in place among major CRE components, toward the end of 2009, delinquencies for all three components a decrease of 65%. Several factors triggered the deep decline and of retail-related credit are declining according to Equifax (see weak recovery in retail construction. The sharp drop in house prices Chart 11). Bankcard and retail delinquencies are now below their eliminated much of the home equity that had fueled consumer spending prerecession troughs, marking a substantial improvement in the prior to the housing crash. Plummeting home sales weakened quality of consumer credit balances. As a result, lending standards demand for housing-related goods. Finally, the overall weak job for consumer credit will ease in coming years as consumer spending market has weakened income growth and consumer confidence. and demand for credit rise, supporting retail sales and retail CRE demand. CRE Finance World Winter 2013 58


CRE Finance World, Winter 2013
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