July 9, 2014

In our May newsletter, we mentioned the fact that employment and job growth is one key factor that drives commercial real estate development and investment, and we’d like to dive into that issue a bit deeper in this edition.

Job Growth Top Issue for CRE Experts

In its Emerging Trends in Real Estate 2014 report, the Urban Land Institute surveyed CRE experts who ranked job growth as the No. 1 issue impacting commercial real estate this year (giving it a 4.63 out of 5 on a scale of 1 to 5, with 5 being the most important).

According to the report:

“With the economy in a position where the tailwinds are now stronger than the prevailing headwinds, 2014 should be a year when we see real estate fundamentals improve in sectors beyond the already very healthy multifamily sector—and, in a number of markets—to a point where we could see above-inflation-rate rental growth,” says a fund manager.

According to Emerging Trends 2014 interviewees, the tailwinds include ‘good, if not great’ job growth—in industries that are, by no small coincidence, magnets for commercial real estate investment (energy, technology, health care and biological research, and, to some extent, education and financial services)—solid corporate profits and a recovery in the housing market.

What It Means for the Southeast Market

According to Enterprise Florida, a statewide economic development entity, the state has the fourth largest economy in the United States and the 21st largest economy in the world. Among its top industries are energy/clean-tech, life sciences, technology (including IT and aerospace) and financial services—the very industries mentioned as key CRE drivers in the ULI report.

The economy is improving in the Southeast, and one indicator of that positive growth is the addition of jobs. Florida led the nation in new job creation, as reported last quarter, with 225,100 jobs added in the state between March 2013 and March 2014.

The Miami Business Herald reported, “In South Florida and throughout the state, the construction and hospitality-industry sectors have posted significant job gains in the past year, as have white-collar sectors like financial activities and professional and business services.”

Economic experts point to those gains as one more piece of evidence that the state’s economy has emerged from the recession and is showing signs of robust health.

“Florida’s economy really is firing on all cylinders now,” said Mekael Teshome in the Miami Business Herald story, a PNC Bank economist who covers Florida. “The economic drivers for the state are clearly in recovery mode, like housing, tourism, consumer spending. In South Florida, you also have a robust global economy that is contributing to Florida’s rebound gaining steam.”

Other regions in the Southeast are also showing positive economic and job growth, and the ULI report listed several metro areas in the Southeast as “generally good” in terms of real estate prospects. (See page 33 of the report )

Among those regions, of course, is the Atlanta market. Earlier this year, Forbes ranked Atlanta as the No. 12 on the list of America’s fastest-growing cities: It has a growth rate of 1.27 percent. Atlanta added 59,800 jobs in 2013, and the city is expected to add 46,800 in 2014 and 61,300 in 2015, according to Rajeev Dhawan of the Economic Forecasting Center at Georgia State University.

According to the Metro Atlanta Chamber, the city has the 10th largest GDP in the United States (the chamber also reports that the Southeast’s economy is the largest of all U.S. regions). Metro Atlanta is home to 26 Fortune 1,000 companies and its top industries include technology, biosciences and health, cleantech and manufacturing.

The Atlanta Business Chronicle reported last week that:

The commercial real estate market in Atlanta continues steady improvement in the first half of 2014.

Along with Seattle, Atlanta led the nation in vacancy declines at a drop of 60 basis points with technology and health care firms leading the demand for space. With new construction and vacancy rates remaining low, our growth momentum should continue throughout 2014 as the region reaps the benefits of an improving economy and employment growth.

Looking ahead

These key economic indicators nationwide, and in the Southeast specifically, contribute to PointOne Holdings’ confidence in the commercial real estate market in the years to come. We continue to identify value-add opportunities for our investors that capitalize on these trends. To learn more about our current portfolio, visit www.pointoneholdings.com/portfolio/, and stay tuned for new opportunities.

We wish you a great summer and look forward to speaking with you soon.

Sincerely,

PointOne Holdings