Industry Outlook Gets Mixed Verdict

WASHINGTON, DC-The real estate industry has two new reports to consider as it continually refines its assessment of near and medium term prospects. One is the Federal Reserve Bank’s so-called Beige Book. The other is the Architecture Billings Index.

Findings from the Beige Book, a summary of economic activity in the Fed’s 12 districts, ranged from cautious optimism in some regions to continued concern. For example, “a few encouraging signs were noted” in the labor markets, but “virtually every reference to improvement was qualified as either small or scattered”. For the commercial real estate industry, though, the verdict was an unqualified thumbs-down.

Commercial real estate was reported to be one of the weakest sectors, it said. “An inability to obtain credit was often cited as a problem for businesses that wanted to purchase or build space,” explains the report. “High vacancy rates were noted as a key concern especially for landlords who were not offering concessions.” Federal projects funded by the stimulus were one of the few bright spots for the industry, it said.

The Architecture Billings Index also seized upon the stimulus; however its report was slightly more optimistic, which bodes well as it is a leading economic indicator of construction activity, reflecting the approximate nine to twelve month lag time between architecture billings and construction spending. For September, the ABI showed a nominal improvement with a rating of 43.1, up slightly from 41.7 in August–a score of 50 indicates positive activity; anything below is a decline. The new projects inquiry score was 59.1, its highest level since September 2007.

The fact that inquires for new projects are so high is an encouraging sign that we may be seeing new construction activity entering the design phase, according to AIA chief economist Kermit Baker. “But that optimism has to be tempered by the fact that the marketplace is so competitive that firms are broadening their search for new projects, thereby inflating the number of inquiries that they are reporting,” he says in a prepared statement. “However, some larger stimulus-funded building activity should be coming online over the next several months, partially offsetting the steep decline in private commercial construction.”

Regional and sector breakdowns from the report include: