Commercial Real Estate Chartbook: Quarter 1 WELLS FARGO SECURITIES, LLCMay 25, 2010
Private Nonresidential Construction Spending
Declines in private nonresidential construction spending are expected to moderate over thecourse of 2010. Office, warehouse and retail construction has already declined more than it didduring the 2001 recession, despite a relatively modest build during the preceding expansion. Anabundance of empty space and a lack of financing will hold construction activity to a minimumover the next year. A handful of self-financed projects have been announced over the past year. Inaddition, there has been a slight rise in single-tenant warehouse projects announced this year,reflecting the turn in the inventory cycle, as well as a modest rise in industrial projects. Thegeneral lack of new supply will help the market recover sooner once demand revives on asustained basis.
The general lack of new supply willhelp the market recover sooner once demand revives on asustained basis.
Private Manufacturing Construction Spending
Both Series are 3-Month Moving Averages-100%-75%-50%-25%0%25%50%75%100%125%9597990103050709-100%-75%-50%-25%0%25%50%75%100%125%3-Month Annual Rate: Mar @ -34.9%Year-over-Year Percent Change: Mar @ -29.6%
Construction Spending Growth
Office, Retail and Warehouse Properties, Yr/Yr % Change-60%-40%-20%0%20%40%200020022004200620082010-60%-40%-20%0%20%40%Office: Mar @ -42.1%Retail: Mar @ -40.8%Warehouse: Mar @ -44.4%
Source: U.S. Department of Commerce and Wells Fargo Securities, LLC
Commercial Real Estate Fundamentals
Stronger economic growth during the first quarter helped boost retail sales and officeemployment during the first quarter. The improvement, however, may have gotten a bit ahead of itself. Retail sales grew much faster than after-tax income during the period and the growth alsoseems to be much greater than would have been implied by the tepid rebound in consumerconfidence. Office employment has increased for three out of the past six months. A large portionof the increase has been in administrative and waste services, however, which may simply reflectclean-up efforts from this past winter’s storms. Demand for office space still remains constrained,as many firms need to consolidate space following significant staff reductions over the past two years.
Retail Sales Ex. Auto & Gas Stations vs. Confidence & Income
3-Month Moving Average-15%-12%-9%-6%-3%0%3%6%9%12%15%969798990001020304050607080910020406080100120140160
Core Retail Sales, 3-Month Annual Rate: Apr @ 10.8% (Left Axis)Disp. Personal Income, Yr/Yr % Change: Mar @ 2.8% (Left Axis)Consumer Confidence: May @ 57.8% (Right Axis)
Stock MarketBubbleTax Cut 1Tax Cut 2Housing RefiBoomTaxRebates
Office Employment Growth
Month-over-Month Percent Change-1.0%-0.8%-0.6%-0.4%-0.2%0.0%0.2%0.4%0.6%0.8%200020022004200620082010-1.0%-0.8%-0.6%-0.4%-0.2%0.0%0.2%0.4%0.6%0.8%Office Employment: Apr @ 0.3%
Source: Conference Board, U.S. Dept. of Labor, U.S. Dept. of Commerce and Wells Fargo Securities, LLC