It has been a little over a month since I sent out a CRE Cliffnotes. All I can say is a response I said a lot when I was in the Air Force: “No excuse sir/ma’am!”. Quick overview of what this is: I know this group, and this is one of many emails that will flood your inbox today. The hope is that this is quick, easy to read, and value added way to get some CRE news for you. With that, let’s get to it:
Optimistic PWC Survey
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+ Two Sentence Overview: According to the MIT center for Real Estate, CRE prices increased 19 % in 2010 (2nd biggest on record). Also, cap rates declined in 27 of 31 office markets in 2010.
+ One Sentence Takeaway: Strong competition (large amounts of capital chasing too few deals) and low interest rates have increased prices dramatically -- we all await the pending impact of rising interest rates.
Pessimistic Jobs Article
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+ Two Sentence Overview: Newsweek article that details that many of the jobs people are taking as the economy rebounds offer lower pay, fewer hours, and worse benefits than some of the 8.75 million positions that disappeared because of the Great Recession. The article indicates that the economy has suffered a decrease in its ability to create pre-recession high-paying jobs. + One Sentence Takeaway: The good news for Houstonians is the Bureau of Labor Statistics reported Harris County as the second largest county for employment level growth in the country(21.2 thousand jobs from 9/09-9/10) – but hard to tell from the report if these jobs are “under employing” people from previously held pre-recession jobs.
Honey, I shrunk my workspace
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+ Two Sentence Overview: Work stations and cubicles are getting smaller. The most recent IFMA report shows individual workstations have decreased by 15 SF over the past 16 years.
+ One Sentence Takeaway: While cost is the ultimate driver of this decrease, I believe the underlying trend of companies redistributing space to meet the needs of a more social and collaborative workforce is here to stay.
Price of Oil and Houston Office Rents
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- Two Sentence Overview: With fear (see article below) about Libya and pro-democracy uprisings elsewhere in the Middle East Oil hit $104.79 a barrel yesterday. This is a great graph that correlates the price per barrel of crude and the “Class A” rent rate of the Houston Office Market.
- One Sentence Takeaway: There is no surprise to anyone on this email that higher energy prices drives profits and (hopefully) hiring in the energy industry which positively impacts Houston Office absorption – although if you talk to our friends in the energy industry, they seem to prefer the still remarkably profitable, but much less negative attention garnering: $70-$80 a barrel range.
Oil – The Price of Fear
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- Two Sentence Overview: The main reason our friends in the energy industry do not like prices too high is few things can short circuit a global economic recovery like rise in oil prices (when oil price goes up, consumers spend less). With Libya (the world’s 13th largest oil exporter) cutting the supply short by 1.4 million barrels a day and demand up as rich world recovers and demand in India and China surges, $100 prices are here to stay in the short term.
- One Sentence Takeaway: Saudi Arabia is the key: the OPEC leader causes the most risk if there is any uprising there, but is one of the main hopes for price stability with its rather large spare capacity of oil.
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