MacRo LTD Blog

Commercial Real Estate Still Trailing as Recovery Takes Shape

An update on the economy’s impact on land and commercial real estate and what’s ahead in 2011.

Rising Employment will Pull Commercial Real Estate out of the TroughLast week I was given the opportunity from my friends at BB&T to attend the Maryland Bankers Association 4th Annual “First Friday” Economic Outlook Forum held at the Baltimore Marriott Waterfront Hotel.

With nearly 800 bankers and guests in attendance, the four hour symposium featured several well known economists. Baltimore’s Anirban Basu, Chairman and CEO of Sage Policy Group and Chief Economic Advisor for the Maryland Bankers Association gave a presentation.  He then moderated a panel with Michael S. Hanson, Director and Senior Economist with Bank of America/Merrill Lynch; Gary Keith, Vice President and Regional Economist for M&T Bank; and Jeffery J. Schappe, CFA, Managing Director and Chief Investment Officer for Sterling Capital Management, LLC.

In addition the final speaker was Elizabeth A. Duke, Governor of the Federal Reserve System.

So there were a lot of very smart people in the room who provided some great insight on where the US economy has been the last year as well as an interesting perspective on what lies ahead.

The MacRo Report Blog puts its focus on land and commercial real estate; so I thought I’d offer up a brief summary of what I took away from the meeting and provide our readers with some links that will provide you some additional reading.

In sum there is positive news, but lots of caution.

The consensus seemed to be that the US economy is creeping back with the stock market leading the way. Messer’s Hanson and Schappe forecast a likely market correction sometime between March and May of this year with a steady rebound into the summer.

The unemployment rate has experienced a very slight improvement, and the prospects are that it will fall into the mid 9% range by year end. It is likely that this trend will continue to where it reaches the low mid eight percents by the end of 2012. While this is a positive sign, the Fed says that until that rate reaches what they define as normal – that being 5% – things will be sluggish. There appears a delicate balance between minimal inflation, potential deflation, eroded skills of the long term unemployed and business output growth, which will likely mean that reaching that normal could take another four to five years.

As Anirban Basu put it: the concern for this recovery is that “the unemployment rate will be too high for too long and inflation will be too low for too long.”   Locally in Maryland he sees the unemployment rate to fall from it’s current  7.4% to possibily 6.5% by year end. The Frederick, Maryland market has enjoyed normal unemployment rates in and around 3%.

He says that the banks will get good news this year, as he sees a “good yield curve for 2011.”

“So what do you see on the horizon for land and commercial real estate?” I asked the panel.

Development land for new construction is beginning to see some signs of life, but with inventories still high and housing still seeking its bottom in some markets, it is still very much a buyer’s market for those homebuilders looking for land.

The office and industrial markets are also seeing slight pick ups in filling double digit vacancies. The experts see last year as a likely peak for the high rates, but will only reach acceptable levels in direct relationship to a drop in the unemployment rate.

On a local note, MacRo, Ltd. has been experiencing a marked increase in interest in improved available office and industrial properties, as well as conveniently located rural building lots. We have been hearing the same from other commercial real estate brokers in the region as well.

Here are a few interesting related links to articles and presentation that our readers may want to read through:

Basu predicts 6.5 percent unemployment in Maryland in a year: Baltimore Business Journal

Economic Analysis Bank of America/Merrill Lynch January 7, 2011

Federal Reserve Board: Testimony–Bernanke, Statement–January 7, 2011

‘Saving’ the Housing Market – Thomas Sowell – Townhall Conservative (article referenced at the conference)

Basu Presentation to the Homebuilders Association of Maryland: December 2, 2010 (many of the same chart and graphs used in his Maryland Bankers presentation)

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The author: Rocky Mackintosh, President, MacRo, Ltd., a Land and Commercial Real Estate firm based in Frederick, Maryland.  He also writes for

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