SANTA ANA, CA--Bob Bach, (top right photo) senior vice president and chief economist, Grubb & Ellis Co., shares his views on the current commercial real estate markets:
Smart Money called “second derivative” one of those “needlessly nerdy financial words.”
In the context of the recession, it means that conditions are still getting worse but at a slowing rate – a prelude to bottoming out. A number of economic indicators have seen improvement in their second derivatives and some are signaling expansion. But because commercial real estate is a lagging indicator, we haven’t seen second derivative improvement… until now.
Preliminary third quarter data from Grubb & Ellis show an abatement in the pace of deterioration compared with the past two quarters.
By comparison, vacancy in the first and second quarters increased by 80 and 100 basis points, respectively. Negative net absorption and sublease space also appear to be moderating.
What could explain this slowdown in the rate of decline?
One theory is that panicked employers “over-fired” after the credit markets froze in September 2008. The faster deterioration in the leasing market during the first and second quarters likely reflected this panic. Now that the recession appears to be ending, tenants may feel less of a need to further slash their space requirements, although we won’t see positive absorption until job growth returns.
The Labor Department reported that initial jobless claims fell 33,000 to 521,000 last week, beating analyst expectations.
The decline, which was the fourth in the past five weeks, brought the four-week moving average to its lowest level since January 17th. Continuing claims for the previous week slipped by 72,000 to 6.04 million.
Chain store sales rose 0.1 percent in September according to ICSC, the first increase since July 2008. The increase was driven more by calendar and weather effects than by underlying strength in spending, but we’ll take what we can get.
Contact: corporatecommunications@grubb-ellis.com.
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