02/18/2010
For more than 40 years, when home starts have fallen off, employment has gone downhill soon after. And when those two components of the economy decline, so does commercial real estate.
When will they all be back? Watch the figures on home starts, says Ed Kearney, managing director of Kearney Commercial Realty Inc./Sperry Van Ness.
Housing and jobs are closely tied in Palm Beach County and all of South Florida, where about one in five jobs is related to construction. When home sales started plunging in 2007, the unemployment rate in Palm Beach County shot up. The jobless rate soared to 11.5 percent in December 2009 from 3.5 percent in March 2007.
The housing market went downhill about a year before the job market. Sales of existing single-family homes in the Palm Beach metro market dropping 19 percent between 2006 and 2007. They stayed flat in 2008, according to the Florida Association of Realtors.
“When the housing market collapsed, the job market tumbled with it,” says Ed Kearney of Kearney Commercial Realty Inc. “Carpenters, plumbers and others were put of work. Restaurants, stores and nightclubs that served those workers were severly pinched. Some closed their doors.”
The rapid drop rocked some shopping centers. In Palm Beach County, the West Palm Beach mall closed in early 2010. The owner of an upscale lifestyle center, Downtown at the Gardens, faced foreclosure in 2009 from a lender that had bought the mortgage from the previous lender for about 35 cents on the dollar, according to a published report.
At the same time, office vacancy rates across Palm Beach County rose as mortgage companies and other providers of professional services to construction and other industries scaled back or shuttered.
When will the downcycle end? Watch the trend in housing starts, says Ed Kearney of Sperry Van Ness. A consistent rise will be the first sign of a recovery that will extend into commercial real estate in Palm Beach County.
The good news is that sales of existing homes bounced back 25 percent in 2009 from 2008 levels as prices kept falling and buyers closed in time to collect a federal stimulus incentive. Nationwide, construction of single-family homes rose 1.5 percent in January 2010 from December 2009 levels, the Commerce Department said.
Homebuilding requires confidence on the part of developers, contractors, lenders and buyers that a residence or a community is financially feasible. Once contractors go back to work, they will hire workers.
Those employees will soon have money to spend. As that currency flows through the local economy, businesses will start up or begin to re-hire, revving up prospects for retailers. That, in turn, will generate revenue for businesses that provide goods and services to those companies.
“But don’t expect the commercial real estate market to bounce back immediately,” Kearney says. “It could take a year to 18 months for an improved economy to spur retail sales and generate demand for office and industrial space.”
About Edward Kearney and Sperry Van Ness
Edward Kearney is managing director of Kearney Commercial Realty Inc./Sperry Van Ness with an extensive background in various aspects of commercial real estate including investment analysis, landlord and tenant representation, and property tax abatement. SVN is a leading national brokerage firm that markets commercial real estate properties to an investment and brokerage community of more than 100,000. Kearney welcomes investors, brokers, and others with an interest in the Florida commercial real estate market to contact him today by calling 561-616-6262, or visiting http://www.svnpalmbeach.com for more information about the services he provides.
For more information about Edward Kearney and Kearney Commercial Realty Inc./Sperry Van Ness, please visit http://www.svnpalmbeach.com.
