Lacking Confidence Ripples to CRE Sectors

(Carl Cronan is editor of Real EstateFlorida.)

TAMPA, FL-Weakening consumer confidence in Florida will indirectly impact commercial real estate, says the head of the state’s largest industry group. Economists believe the current downturn parallels the 1990-91 recession and could ultimately compare with the one in 1973-75.

The University of Florida’s latest consumer confidence index fell four points in April to 66, two points away from the December 1991 record low. The index already fell to 68 twice this year, in January and March.

Falling home prices, tighter credit and rising costs for gasoline and food are simultaneously taking a toll on Floridians and rippling to various aspects of commercial real estate, says Stevens Tombrink, state president of the National Association of Industrial and Office Properties and regional VP with Equity Inc. in Tampa. Such effects include excess office subleases due to downsizing and industrial vacancy caused by closings of manufacturing and distribution centers, he says.

“This is the last leg of the stool,” Tombrink tells GlobeSt.com in reaction to the latest UF Consumer Attitude Survey. The only possible silver linings helping commercial sectors, he says, are favorable first-quarter corporate earnings reports and an additional reduction in interest rates.

How long it will take for the current down cycle to reverse is anyone’s guess, with some economists predicting a turnaround this summer and others warning that we’ve yet to see the worst. Concerns are also being raised over the prospect of “stagflation,” where productivity retracts as inflation rises.

“Unlike the relatively mild recession of 2001, the recession of 1990-91 resulted in a longer time to recover,” says Chris McCarty, director of survey research at the UF Bureau of Economic and Business Research in Gainesville. “This is a likely scenario for the current economy.”

Four of the five components making up the UF index fell in April, with the largest decrease seen in perceptions of personal finances over the coming year, down nine points to a record-low 79. Perceptions of US economic conditions over the next 12 months fell six points to 52; perceptions of personal finances now compared with a year ago fell five points to 59, also a record low; and perceptions of economic conditions over the next five years fell four points to 72. However, perceptions about now being a good time to buy big-ticket items rose three points to 67.

McCarty notes that investors are adjusting to write-downs of bad loans made by banks, reducing the book value of assets that are overvalued compared to their market value. He adds that the economic stimulus package, while a welcome relief for many households, probably won’t do much to change the economy’s course.