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Nonresidential: Commercial Environment Improves

05/12/2011 by Jim Haughey, RCD Chief Economist

The discrepancy between the commercial and institutional markets continues to widen. Key market drivers for the commercial (for lease) market continue to improve while the drivers for the institutional market continue to weaken.

In the commercial market, credit costs are steady at a low rate and REIT’s and many large banks are now actively seeking commercial mortgage business. Rents are rising and vacancies are falling although this is not yet reflected in the latest hard data through the 4th quarter. And the value of project starts has just turned up. Design work underway reported in the monthly AIA member survey has been improving since last fall. So further gains in project starts are expected.

Institutional starts are slipping lower under pressure from declining public funding although has not yet fully hit monthly construction spending reports. The various federal subsidy programs are nearing an end. Congress is unlikely to renew them and may cancel some of the remaining unspent funds. State spending cut to meet balanced budget requirements will continue into next year. Municipal spending is now also being cut as reserves are exhausted and state revenue sharing is being trimmed. Nonprofit funding is holding up better, although still slipping slightly, because of still expanding funding sources such as college tuition and hospital fees.

Key Indicators of the U.S. Market Environment — April 2011
Commercial and Industrial Construction (Driven by cyclical factors)

  Year
Ago
Previous
Month
or Qtr.
Latest Level Recent
Trend
Impact
on Const.
Commercial
Dow Jones composite REIT,
index (Dow Jones)
169 182 W/E Apr 26 2011 192 Average Rising
10-Year T-bill rate, % level (FRB) 3.81 3.38 W/E Apr 22 2011 3.41 Low Steady
Office rent, 54 metro areas,
% change y/y (PPR)
-8.5 -3.5 Q4 -1.5 Low Falling
Office vacancy rate, 54 metro areas,
% level (PPR)
18.6 18.9 Q4 18.6 High Falling
Office employment, % change y/y (P&PR) -5.1 -0.2 Q4 0.6 Low Rising
Office construction starts (% change),
3-mon. ave. y/y % change (RCD)
-21 -21 Apr 30 Low Rising

Hotel room rate, 54 metro areas, ann.
% change (PPR)
-10.7 1.9 Q4 2.2 Low Rising
Hotel occupancy rate, 54 metro areas,
% level (PPR)
57.9 60.8 Q4 61.8 Low Rising
Airline revenue passenger miles,
% change y/y (RCD)
3.2 2.9 Mar 1.6 High Rising
Real price of gasoline , $s/gal.
(U.S. Energy Dept.) May'10 = 100
2.84 3.23 Mar 3.57 High Rising
Hotel construction starts (% change),
3-mon. ave. y/y (RCD)
-44 -26 Apr 10 Low Rising

Retail rent, 54 metro areas,
% change y/y (PPR)
-8.3 -4.4 Q4 -3.8 Low Falling
Retail vacancy rate, 54 metro areas,
% level (PPR)
19.2 18.1 Q4 18.4 High Rising
Retail sales, % change y/y
(U.S. Census Bureau)
8.1 9.1 Mar 7.1 High Rising
Consumer confidence index
(The Conference Board)
57.7 63.8 Apr 65.4 Low Rising
Consumer real income, % change y/y
(U.S. Commerce Dept.)
1.8 2.5 Feb 3.0 Average Rising
Retail construction starts % change,
3-mon. ave. y/y (RCD)
-40 4 Apr 18 Low Rising
Industrial
Warehouse rent, 54 metro areas,
% change y/y (PPR)
-9.2 -6.3 Q4 -4.5 Low Falling
Warehouse vacancy rate, 54 metro areas,
% level (PPR)
12.2 12.3 Q4 12.2 High Steady
Business inventory, % change y/y
(U.S. Census Bureau)
-6.7 9.2 Feb 9.1 Average Rising
Business sales, % change y/y
(U.S. Census Bureau)
7.9 10.0 Feb 9.1 Average Rising
Warehouse construction starts (% change),
3-mon. ave. y/y (RCD)
-49 4 Apr 70 Low Rising
Capacity utilization rate, % level (FRB) 70.1 75.3 Mar 75.8 Average Rising
Manufacturing production index (FRB) 85.6 91 Mar 91.7 Average Rising
Goods Exports $ billions
(U.S. Commerce Dept.)
105 121 Feb 118 High Rising

Abbreviations: y/y = year over year; W/E = week ending; FRB = Federal Reserve Board;
PPR = Property & Portfolio Research; RCD = Reed Construction Data
Table: Reed Construction Data and Reed Construction Data - CanaData

Key Indicators of the U.S. Market Environment — April 2011
Institutional Construction
(Driven by demographics and government finances, as well as cyclical factors)

  Year
Ago
Previous
Month
or Qtr.
Latest Level Recent
Trend
Impact
on Const.
Institutional
State & local govt. capital spending,
$ billions (U.S. Commerce Dept.)
342 347 Q4 341 Low Falling
State & local government tax receipts,
$ billions (U.S. Commerce Dept.)
1,293 13,135 Q4 1,357 Low Rising
State budget reserves, % of Exp.
(National Governors assn.)
4.7 n/a FY 10 6.2 Low Steady

Abbreviations: y/y = year over year; W/E = week ending;
FRB = Federal Reserve Board; RCD = Reed Construction Data
Table: Reed Construction Data and Reed Construction Data - CanaData


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