The real estate market has been heavily impacted by The Great Recession. While the current economic environment continues its slow march towards recovery, the real estate sector continues to struggle with a weak housing market and a loss of jobs and key employers.

“For 2012, considering the uncertainty in markets, the St. Louis Metropolitan area, although not glamorous, has held its own primarily due to the diversity in our employment base. We have lost jobs due to consolidation, relocation and or acquisition, but the education, medical and biotech, financial services and insurance, as well as transportation and distribution sectors remain steady and in many cases are expanding,” Conceller said.

St. Louis Retail: Leasing, Development Activity Heats Up

Consumers are loosening their wallets in St. Louis, and the thaw in spending has given the local retail market a much-needed shot of adrenaline. The discount retailer is still king, but new concepts and developments are gaining ground. With positive absorption of space on the rise, investment sales are increasing.

St. Louis is poised to see a major development in the central trade area at the former Hadley Township site. After several failed attempts at development in the past 10 years, Hadley seems destined for redevelopment at last. The 40-acre site is located on I-64 in the central suburb of Richmond Heights and will consist of an assemblage of 150-plus commercial and residential parcels.

In the southern half of the development, Menards was selected by the city over Costco and will open one of its first St. Louis locations in early 2014. The site plan includes a 240,000-square-foot store with additional out parcels for retail and restaurant users.

In the northern half, Pace Properties has received approval to develop a two-story, 400,000-square-foot, big-box store for an as yet unnamed retailer. This development will further enhance the desirability of the Richmond Heights/Brentwood area as a retail destination and will boost asking rents in the vicinity.

In Chesterfield Valley, located in the west trade area, competition is brewing between two outlet mall developers. T-O Ventures LLC and Simon Properties Group/Woodmont Outlets are vying to build competing 400,000-square-foot outlet centers.

The centers would be approximately 3.5 miles apart. Simon Properties has already announced the signing of its anchor tenant, Saks Fifth Avenue’s OFF Fifth, which would be the first Missouri location for the retailer. T-O Ventures has declined to name tenants, but has moved forward with the groundbreaking. While both sides concede that only one center will be built, neither side is backing down.

Other developments in the planning stage include proposed Walmart stores in Ellisville, Shrewsbury and Florissant; a Sam’s Club in Glen Carbon; the Lindenwood Town Center in St. Charles anchored by a Schnucks supermarket; and a mixed-use redevelopment of the 122-acre Northwest Plaza site in St. Ann.

National Retailers Expand, Investments Take Off

The St. Louis market suffered through high vacancies and lower rents during the recession years of 2008-2010, a time when many retailers such as Ultimate Electronics, Borders and Linens ‘N Things vacated mid-box spaces.

However, we are starting to see a light at the end of the tunnel. In a promising indicator of recovery, several national retailers are entering the market including hhgregg, Nordstrom Rack, Ross Dress for Less, Five Below, buybuyBABY, Savers and Menards.

Read more at www.heartlandredbusiness.com

‘Europe’s sovereign debt crises are changing daily, yet are making little progress toward long-term solutions. The only questions are when, how and who will be left holding the bag?’ asks NAI chief economist Dr. Peter Linneman. In his new white paper, Dr. Linneman discusses the potential effects the debt crisis in Europe will have on the commercial real estate industry.  The following is an excerpt:

Why is it that drops in asset values associated with impaired debt undermine economic activity far more than larger drops in equity values do? For example, during the tech bubble and the subsequent crash, $5 trillion in economic value disappeared over 30 months on the U.S. stock markets. This dwarfs the decline in asset values associated with impaired debt during the financial crisis, which are perhaps $1-2 trillion. Yet the real economy quickly regained its balance even after trillions of dollars were wiped out on the stock market, while far smaller losses via impaired debt have constipated economies across the globe. No clearer example exists than Japan over the past 21 years. And now Europe is following suit.

As inflation takes hold, generations that have never witnessed inflation will experience its destructive power, says NAI chief economist Dr. Peter Linneman. In his new white paper, Dr. Linneman discusses the potential effects inflation will have on the commercial real estate industry.  The following is an excerpt:

No one deserves less forecasting credibility than the Fed. Over the last two decades, their macroeconomic forecasts have been among the poorest of any forecasters, despite the fact that they are the only forecasters who know macro policy decisions before they are announced. The Fed’s abysmal forecasting record makes our record look extraordinary, as at least we forecasted a 2009 recession in early 2006. Even as the recession was well under way, the Fed was saying there was no recession. Yet the Fed’s forecasts continue to gain respect.

Most notable in this regard is the Fed’s assurance that there is no danger of inflation. Bear in mind that this is the same Fed that worried about deflation a decade ago, subsequently flooding the market with liquidity that ultimately led to disastrous asset pricing bubbles (which they assured us did not exist), particularly for housing. Simply stated, the Fed’s assurances about inflation ring hollow.

Let’s look at some facts. We recently received notification from our healthcare insurer that healthcare costs for our company are rising by 24%. We were shocked, and discussed this increase with many other owners of small and mid-sized firms, only to find that their increases were even higher than ours.

This raises a very simple question: How is it possible to have 25% increases in healthcare costs, which account for roughly 17% of GDP, and not have serious inflation? Even if all other prices in the economy remain unchanged, this healthcare increase alone would generate an aggregate inflation rate of 3.75%. Also in the past year, education has risen by 4.4%, food prices have risen by 0.44%, and anyone in the business knows that apartment rents (supposedly 40% of CPI) have risen by at least 3% (and in some markets by as much as 8%). These basic truths suggest that there is already serious inflation in the U.S.

Read the entire article here.

And if you like what you read, stay tuned to the NAI DESCO website for information on Dr. Linneman’s next webinar.

I saw an article recently that stated “If we are always looking in the rear view mirror it is hard to keep our eyes on the road ahead.”  The lesson is obvious, we can not ignore the past but rather we should learn from it and have the ability to quickly look forward and responsively meet the challenges of our daily tasks.

In the early 90’s we saw the commercial real estate market in a state of upheaval, with the savings and loan debacle causing values to plummet.  The eventual result was a turn around starting in the mid 90’s with values of properties reaching market level heights not seen before. 

In 2000 we saw the Dot.com over expansion and another sharp decline in rents, values, and owner profitability only to be followed a few years later by the most robust increase in commercial real estate values that we have ever seen.

Taking a look at our current situation finds the commercial real estate market once again bouncing along at the bottom of a down cycle that has been present for the last couple of years.  Market activity would indicate that the markets are rebounding ever so slowly but with better days ahead.  So what is our future course?

The message is simple:  Buy it today or lease it now for the values you will find today won’t be there tomorrow.  But that sounds risky doesn’t it?

We need to think outside the box and recognize that only by trying some difficult ways of working….some “risky business” will we be able to move forward.  The answer to this recession, as it relates to our respective industries, whether it is commercial real estate, banking, accounting, or the practice of law lies within the individual that seeks to change and do things a little better than before.  We will not find long term solutions from federal or state programs, success will come from individual efforts whereby; each of us push a little further to complete a real estate transaction; advise a client armed with more research and analysis and the results will be better for our clients.  Clients will be ready to assess risk properly and thus benefit long term from the property they buy or lease.   

Everyday we take risks.  We assess risk, and then enact a plan based on the priorities in our lives and based on the successes or failures of our past.  But it is not enough to rely on prior experience; we need to think of better ways to learn from our past in order to shape our future.  Based on that, I am suggesting that we take advantage of this down market to conclude commercial real estate transactions.  Those buyers or tenants that do their homework will be rewarded over the long haul.  I am not promoting that gains will be quick but when we pause in a couple of years and look back, I think we will realize what a window of opportunity was present in 2011.

As evidenced by data from the Federal Reserve’s October 2010 Burgundy Book, the St. Louis market area has experienced a small but steady increase in economic activity through the latter portion of the year. The St. Louis area is aided in this respect by its diversification in sectors such as bioscience, information technology, financial services, transportation/distribution and high-tech manufacturing. Local market indicators mirror an overall national trend towards improvement in these areas.

After minimal shifts in the early portion of the year, the industrial market showed small but promising gains in net absorption through the third quarter of 2010. Less than 200,000 square feet of new space was delivered in the current year, a historic low, which aided in absorption gains. The majority of activity in the market was renewals rather than new leases; however, large leases were signed by Proctor and Gamble (502,500 square feet), Keefe Packaging (288,000 square feet) and LuxCo (213,558 square feet). Future development is hopeful for two former automotive plants — the 295-acre former Chrysler plant is being marketed for redevelopment in Fenton and the razed former Ford plant is being redeveloped into a business park in Hazelwood.

Read the full article at Heartland Real Estate Business.

What a difference a decade makes. It was just 10 years ago that:

• panic was rampant about the Y2K bug;
• the Nasdaq closed at 5,048.62, its highest point before the dot-com bust;
• AOL bought Time Warner for $162 billion;
• Vladimir Putin took charge of Russia;
• Bill Gates stepped down as Microsoft’s CEO;
• Elian Gonzalez (who?) was on the front page of every newspaper;
• Vermont approved gay unions; and
• the Bush vs. Gore election was too close to call.

And that’s just the fun stuff. Over the past 10 years:

• Real GDP grew by only 17% after growing by 34-40% during the previous three decades;
• Real federal debt held by the public increased by some 95%, or about $4 trillion;
• Employment stands at about 1.4 million fewer payroll jobs than what existed in 2000; and
• Consumer confidence ended the decade 31% lower than it began.

Where have the good times gone?

In 2000, our federal budget surplus was over $200 billion under Bill Clinton, and the world was at relative peace. In 2010, Barack Obama led the U.S. to a federal budget deficit in excess of $1.3 trillion, the U.S. is at war in Afghanistan and still has a strong military presence in Iraq. In between those two, the Bush administration took us through two recessions, two wars and we witnessed the horror of the September 11th attacks. We experienced oil prices of nearly $150 per barrel, a booming and plunging housing market and an extreme financial crisis.

The first decade of this century had a roaring start and a punishing conclusion. A scorecard for the 10 years from mid-2000 through mid-2010 reveals that annual population grew by 0.94% per annum, while real GDP rose at the compounded annual rate of 1.58%, resulting in annual per capita GDP growth of 0.64%. Over the prior three decades through 1999, real GDP grew by 34-40% per decade. In comparison, it only grew by 17% over the last 10 years.

Read the entire article here.

And if you like what you read, join us for Dr. Linneman’s next webinar on January 19th where he will discuss how we move on from such a disastrous decade. Register here.