Some up and some still sliding: a forecast for the remainder of 2011 for the Housing, Land, Industrial and Commercial Real Estate Sectors

There is no question that the real estate market on a national basis is still in general turmoil. Some sectors are beginning to show solid growth at the expense of other less fortunate ones.

Here’s a quick overview from this real estate blogger’s perspective:

1. Existing Housing: Simply put, it is still hurting badly. There are still about 12 million homeowners whose loans are worth more than the value of their homes. And with a slow recovery in the job market, the prospects for stability anytime within the next five years are unlikely. With that said, some markets like the Washington DC metropolitan and suburban Maryland areas have been showing modest price increases over this time last year.
2. New Homes: Inventory is finally burning off and many home builders in more active areas have been out acquiring and securing development land to feed the pipeline. Most of these risk takers are building for extremely modest margins, hoping to make some gravy with extras. Home styles are trending smaller with high quality finishes and lots of gadgets. The survivors are well capitalized and running lean with no visions for a renewed boom anytime soon.
3. Residential Condominiums: Just plain ugly – way over built… will likely be the last type of improved real estate to land on its feet.
4. Multifamily: Has received a real boost with higher and more stabilized occupancy rates and rents in the last 9 months.  With the single family market still struggling and the job market only improving modestly, investors have gravitated to apartments bringing capitalization rates down over 100 basis points. Several markets were not over built in this sector and demand for multifamily land is therefore strong. This is the one market that will continue to improve as the rest of the housing market struggles toward stability.
5. Rural land and lots: Run of the mill properties are still sliding in value from their peak of 5 years ago. Generally, such properties will follow the return of the single family market. The bright spot is that upper income buyers are on the prowl for choice building lots in planned rural communities or unique country gentlemen tracts. Prices in these segments tend to hold value better where supply is limited.
6. Industrial: In general, this market is beginning to show modest positive signs. The National Association of Realtors recently forecast that vacancies in the industrial sector can expect a decline from the current 13.9% to 13.0% in the spring of 2012. This improvement will come at the cost of a decline in rental rates of as much as 1.5% through the end of this year before starting a 2% ascension through 2012.
7. Commercial Retail: As this sector begins to recover, it is putting many retailers through the men and boys test. A classic example is found in our local market with grocery chains. The early 2000’s saw neighborhood strip centers popping up on every intersection with second tier grocers anchoring most every one. While several have been folding their tents, this was accelerated with Wegman’s entering the market. Beyond this example, many existing retailers are seeking rent relief to stay in business and enticing offers are being made to attract new. The real losers in the retail arena appear to be the second tier shopping malls. Expect this trend to continue throughout the rest of this year.
8. Office: The DC metro area had led the recovery with millions of square feet of government leases over the last two years. Now that the stimulus monies have waned, the private sector is picking up the slack, as reported in the Washington Business Journal last week. Nationally, the vacancy rates fell slightly in major metropolitan areas and many suburban markets saw an increase in vacancies, as in the case of Maryland with a 15.1% to 15.7% between first and second quarters of 2011. Generally, continued improvement can be expected into 2012.

The core factor to the recovery of all sectors of the real estate market and the economy in general still “happens to be … a three-letter word: jobs. J-O-B-S,” as so aptly stated in an October 2008 campaign speech by now Vice President Joe Biden. All kidding aside, as the job market improves so goes the real estate market. Trends appear to be strongly favoring curbing government spending at all levels, and while the issue of deficit spending is brought under control, the private sector will gain more confidence in the future.

An interesting test will be to see how business reacts to the results of the November 2012 national election. Whatever way it goes, it will likely be a strong bellwether for gauging the pace of the economic recovery over the coming years.

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Rocky Mackintosh, President, MacRo, Ltd., a Land and Commercial Real Estate firm based in Frederick, Maryland. He is an appointed member of the Frederick County Charter Board. He also writes for TheTentacle.com.