…could get worse (or better). This truly depends on which camp you associate with regarding the economic divide that is now a larger topic of debate in our country. As for policy that is directed towards a remedy, both political parties could not be wider opposed to proposed solutions from the other, which is certainly indicative of our political and economic divorce.
The dichotomy is evident throughout the consumer world. For an example, high end retailers such as Nordstrom are recording excellent profit, and the low end, Dollar Stores, is doing great volume. As for the middle, JCPenney is laying off.
Apple has the highest market capitalization for a technology company (or any company for that matter) with continued pricing power, yet products and inexpensive technological innovations from Google continue to see enormous, reliable volume. Yahoo and Blackberry are getting slaughtered.
From a real estate perspective, multi-family is witnessing increasing occupancy levels from above normal rental activity and, on the opposite end, high end homes are picking back up once again as salaries, stock market and stable investments are paying greater tangible and mental dividends.
Farm and shale land are all the buzz, with prices quadrupling during a recessionary period, yet large tracts of land unloaded by lenders are dirt cheap. Midsize land tract owners and developers have had no place to hide, with speculative plays now in another’s coffers.
This all said, there remains activity in the middle and it is improving, which is absolutely essential for commercial real estate to fully function as a healthy investment consideration. When the headlines such as ‘commercial real estate is gradually improving’ echo throughout, it is the middle where analysts tend to concentrate. As for the high end, which I consider to be strategically located, newly developed, and freshly tenanted, it is going up, while the low end is dissolving. The middle (aka. the fence) is falling on one side or the other.
As for our firm, we are well positioned to guide and administer needs of the small (combining forces), middle (established, seeking to compete in other markets or adopt new identity) and large (strengthening and capitalizing on current position); we have solutions for all.
8 Brain Benders (from easy to more difficult):
Property sales prices may be $600 per square-foot tenanted and will likely continue higher. What could change this trend? Stronger Dollar.
Property sale prices may be $6 per square foot vacant and will continue lower. What could stop this trend? Lower Oil Prices.
Lease Rates will continue improving. What will change this trend? More Problem Banks.
Rental concessions will likely continue to increase. What will change this trend? Mortgage Rates Moving Higher.
Tenants will begin to purchase buildings. It is going to happen. As for cautions, several purchases on high end will eventually suffer due to current and future price speculation and a small percentage on the low end with sacrifice their business principles for a real estate play that will weaken their competitive position in the long run.
CPI will likely remain steady. What will change this outcome? Stock market decreases significantly.
Buildout costs will continue higher. What will change this trend? Fannie and Freddie are officially taken over.
Eyesore buildings will continue to worsen. What could change this trend? REIT prices continue higher.