SANTA ANA, CA--Bob Bach, (top right photo) senior vice president and chief economist, Grubb & Ellis Co., says in his latest market overview, "Construction cost inflation for commercial real estate has leveled off sharply as lending and new starts have plunged."Inflation in the broader economy, which was an issue as late as last summer, has taken a back seat to the fear of deflation as demand dries up across the globe, sapping business pricing power and profits.
"However, it is too early to be concerned about deflation. The $800 to $900 billion economic rescue package working its way through Congress is expected to cushion the fall in demand and set the stage for a recovery beginning in 2010 or 2011.
(Chart below shows non-residential construction inflation as a year-to-year percent change.)
"Although the package does not address commercial real estate, the industry has cropped up in discussions on how to use the second $350 billion of the Troubled Asset Relief Program funds, generally in the context of loan guarantees or government purchases of CMBS loans to unclog the market for new private lending.
"These programs are unlikely to jump-start real estate construction, which won't be needed until the economy absorbs the growing inventory of excess space. But infrastructure spending will play a starring role in the economic rescue package, which is likely to stimulate construction and repair of roads, bridges, mass transit and energy projects, keeping a floor under construction costs.
Source: U.S. Bureau of Labor Statistics, Grubb & Ellis
For more information or to speak with Bob Bach, please contact Janice McDill at 312.698.6707
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