Tuesday, January 21, 2014

Bucking the Trend

A new year has dawned, following a year of uneven progress for the real estate market. The industrial market had its best year in five, retail kept its head above water and tallied up its third year of positive net absorption, and office managed a decent year all the while looking about as appealing as Mylie Cyrus with a foam finger.

The underlying economic fundamentals of 2013 were uneven as well, but positive overall. I’ve already written about the trend in Southern Nevada's Napoleonic economic cycle of attack in the summer and retreat in the winter (yes, I hate myself a little for that Napoleon bit, but my father paid for a history degree so I need to use it), so now we need to see if that trend is holding.

Economic data never arrives as quickly as we would like it (“we” being people who have to think and write about economics - I'm sure the compilers of economic data think it comes plenty fast enough), but the numbers for November 2013 are finally filing in to be counted and analyzed. If the trend we discussed last time holds, we should see the CRE Recovery Index leveling off or dropping off in November.

And now for the good news –

November’s index number was actually up! In November, the index reached 95. This is the highest number we’ve seen on the index since December 2008, and that was when the index was plunging (it would be 93 the next month, and 86 six months later). In general, 2013 saw the index take a small step back in February, level off for a few months, and then begin to grow in June, with that growth continuing through the summer, fall and winter. December numbers are not all in yet, but when we look at the numbers that are in, and if we assume those that aren’t in at least stay stable, the index number for December 2013 should remain at 95.

What does this mean? It means that 2013, at least the latter half of 2013, was a pretty solid year. It’s no surprise that it was a year that generated pretty strong performance in the real estate market. We might be seeing the winter lag coming in December and maybe January, but if the region is able to build in 2014 on its reasonably good performance in 2013, we should see continued recovery in the real estate market through 2014. Based on last year’s performance, the trajectory of the retail market is the one to watch. Retail went negative at the end of 2013 after three years of positive net absorption, and this negative turn is taking place just as speculative construction is returning to the retail market. Whether those new projects will stimulate or cannibalize the existing market will be very interesting!

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