Lack of job growth hinders commercial real estate
By Rob Swenson
Job growth is painfully slow and weighing down the pace of economic recovery.
That seems to be the bottom line in many national assessments.
The health of the employment market gets prominent billing even locally in Bender Commercial Real Estate Services' midyear real estate report.
Bender's rather gloomy mid-2010 assessment of Sioux Falls' commercial real estate report starts with encouraging news about employment: After two straight years of job losses, unemployment in the Sioux Falls area might have bottomed out and started rising again.
The report also notes that the area's unemployment rate of 4.3 percent is about half the national rate.
Even so, the metro area is down about 3,500 jobs from three years ago, according to numbers from the South Dakota Labor Market Information Center. That's a lot of ground to make up.
"It feels like we're recovering, but until we really recover with jobs, we don't fill space as quickly," said Michael Bender, founder and principal at Bender Commercial.
Here are a few highlights from Bender Commercial's midyear report:
•Office rental rates have stabilized in the central business district and in the southeast sector, dropped in the north and increased in the southwest.
•The combined vacancy rate for office property in the four city sectors stands at 14.8 percent. The rate is highest - 17 percent - in the southwest.
•The market for industrial property remains stagnant, with little activity being reported.
•Sales of unimproved land are sparse.
•The market for investment property, such as apartment complexes, has sunk to a new low.
"Confidence and financing terms have caused many investors to adopt a wait-and-see attitude," Nick Gustafson of Bender said of the investment market. "Fears of economic malaise and challenged financial institutions restricting lending activities have chilled transactions to a new low."
Yikes.
On the other hand, there probably are a lot of good deals available in the real estate market, construction costs supposedly are low, and up might be the only direction the economy can go.
"I think we're at the tail end of the bottom," Michael Bender said. "We're just going to bounce around the bottom for a while."
He is quick to point out that the fundamentals of the market are getting stronger. There has been a slight increase in construction activity lately, for example, and people are beginning to feel better about the economy.
But it's probably going to take another year or two for positive influences to be reflected in market data, Bender said.
The bottom line: "If we can fill jobs, we can fill up space," he said.
