ShareEconomic activity weakened during the second quarter of 2011. Economic activity as measured by gross domestic product (GDP) advanced a modest 1.3 percent during the quarter. In addition, the figures for the first quarter were revised downward from 1.8 percent to 0.4 percent, indicating a weaker than expected economy.
Consumers curtailed their spending, leading to an almost flat 0.09 percent change in the second quarter. Purchases of goods declined by 1.3 percent and spending on services rose by a mere 0.8 percent. Spending on durable goods declined 4.4 percent, with purchases of vehicles dropping 22.7 percent. Consumers also kept a muted pace of spending on nondurable goods—clothing, shoes, food and beverage, gasoline—which rose a scant 0.1 percent.
Moreover, governments at all levels have been making cuts to their budgets, further impacting GDP figures. Government spending declined 1.1 percent in the second quarter, following a 5.9 percent drop in the first quarter of the year and a 2.8 percent decrease in the fourth quarter of last year.
Meanwhile, businesses propped up the economic activity during the second quarter. Businesses have plenty of cash sitting idle, and the capacity to increase spending and push the economy out of the doldrums. In the second quarter, business investments were up 6.3 percent, targeted at information processing and software, transportation and real estate.
However, the general malaise is impacting commercial real estate in REALTOR® markets. Based on the results of the July Commercial Real Estate Market Survey, the overall market activity contracted following the broader macroeconomic slowdown. On the leasing side, activity was up 4.0 percent over the previous quarter. However, vacancies remain elevated, as underscored by the 7.0 percent decline in rents and the 3.0 percent rise in concessions. Vacancy rates are still in the double-digits for all property types, except multifamily. The majority of respondents found tenants looking for commercial spaces under 5,000 square feet.
Investment sales declined 8.0 percent from the first quarter, as 60.0 percent of REALTORS® reported no sales transactions during the second quarter. Sales were down 3.0 percent from a year ago. In response, prices also declined, by 8.0 percent compared with the first quarter, while cap rates moved up eight basis points. The majority of sales (76%) were below $1.0 million, while the average transaction price was $1.1 million. Commercial practitioners continue to find financing as the top obstacle in closing deals, followed by the pricing gap between buyers and sellers.
The economy—both at the national as well as state and local levels—is weighing on the markets. In addition, the full impact of legislative actions is adding to the general level of uncertainty, as underscored in respondents’ comments.
For the full report along with regional details, please visit http://www.realtor.org/research/research/cre_market_survey.
