Friday, June 22, 2012

CRE Recovery Index Side Steps in April

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The April figures are all in, and the CRE Recovery Index took a step back.

The last two years have seen the index follow a pattern - growth in the spring and summer, decline in the fall and winter, but overall more growth than decline. When the index began to slip last year and then showed some growth in the first quarter of 2012, it looked like the pattern was going to hold, and it still might. April saw the index move back a point, but May data looks like that step back is due to be reversed, assuming new home sales and taxable sales cooperate.

An index in flux would suggest a bumpy second half to 2012, while one that returns to growth could mean 2012 might be salvaged after all for commercial real estate in Southern Nevada.

Looking at that graph, though, it isn't hard to imagine that it will take at least 2 more years before Southern Nevada's CRE market is once again firing on all cylinders. What's holding us back?

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I'm not positive, but it could be the construction employment, or the lack thereof. While most employment sectors are better off than they were 10 years ago, despite the Great Recession, construction employment is well below where it was 10 years ago, and those construction jobs were important job creators in the Valley.

The larger problem for Southern Nevada, though, is illustrated by this graph:

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How many recessions did we go through from 1970 until today, and during none of them did Nevada's population stop growing, even for a year until the onset of the Great Recession. Whether the Great Depression had the same effect, I don't know, but it seems likely.

As it stands now, we still haven't worked our way back up to the population level we had in 2007 - and that indicates a real estate market, both commercial and residential, that can make lateral moves, but will find renewed growth a tricky thing to achieve.

Keep your eyes on the in-migration into Clark County, because that could be the ultimate key to recovery in Southern Nevada. It looks like the flow of people is beginning to return, though it isn't close to the peak of migration in 2005-2006. My guess is that most of the new residents to the Valley are retirees, as the job market in Southern Nevada, though showing signs of recovery, continues to be weak.  As these folks move in with their preexisting incomes, they should help stimulate job growth in the Valley and thus absorption in the residential and commercial markets.

One last graph - commercial forward supply (i.e. planned and under construction space) - just because I like it.

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Enjoy your weekend, and if you can spare a dime, go spend one.

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