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Global and Commercial Articles

Commercial Markets Rise as Economic Expansion Lifts All Boats

May 2, 2019, 15:28 PM
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LIKE A “RISING TIDE [that] lifts all boats,” the current economic recovery is good for both residential and commercial real estate.

Speaking at the Asian American Chamber of Commerce in March, George Ratiu, director of housing and commercial research for the National Association of Realtors® (NAR), celebrated the economic expansion’s ten-year milestone that began in 2009 as Americans dug themselves out of the real estate-driven Great Recession.

“While the recovery has been defined by moderate year-over-year growth, housing prices are up more than 40 percent and wages are up 15 percent in the past five years,” Ratiu pointed out.

The recovery has encouraged employment gains in Northern Virginia and resulted in solid growth in the commercial real estate market. At the end of 2018, unemployment rates in Northern Virginia ranged from a low of 1.7 percent in Arlington County to a high of 2.4 percent in Prince William County, all below the 3.2 percent for the greater Washington, D.C. market, or the even higher national average of 3.9 percent.

“The biggest surprise has been the growth in demand for suburban office space,” Ratiu noted. “Suburban office is back!”

Northern Virginians have seen roughly 50,000 new residents added each year since 2010, which has resulted in an expanded and diversified employment base – improving the office market as well as expanding the consumer base for retail growth.

“Now that Millennials are in their 30s and increasingly married and beginning their families, they have become the largest residential buyers and, like earlier generations, are moving to the suburbs in search of better schools and room to grow,” Ratiu said. “But they haven’t abandoned their preference for the ‘urban life style.’ Instead they have fed the growth of ‘urbanized suburbs’ in areas like Arlington County, Alexandria, Tysons and Reston.”

“Absorption” is the term used to measure how tenants fill buildings, even with new construction. In Northern Virginia, absorption continues to improve as vacancy rates fall. Multi- family housing has been particularly strong as more residents have moved into multi-family properties in the past two years than developers have been able to build. Office vacancies, too, have dropped slightly in the past year, although they still remain higher than historical averages in the area.

Commercial real estate remains increasingly attractive for investors as well. By taking advantage of low interest rates and available commercial mortgages, investors have a relatively low-cost way to leverage their investment dollars and realize predictable net income returns, without worrying about falling stock prices.

“The Washington, D.C. market has emerged as the tenth top worldwide destination for foreign investors, along with fellow American cities of New York and Los Angeles” Ratiu noted. “With its perceived safety for long-term investments and strong rates of return, the United States remains attractive to international investors.”

Amazon’s decision to locate its second headquarters in Arlington County is expected to add more than 25,000 technical and highly paid employees occupying roughly 500,000 square feet during the next 10 years in the area that will now be known as National Landing.

Renovations to National Landing, along with various transportation improvements and the construction of the promised Virginia Tech Innovation Campus, will pump additional investment dollars as well as added jobs.

“We expect the multiplier effect from adding Amazon will generate two to four additional jobs for every job they create,” Ratiu pointed out.

That would mean for every 2,500 jobs created by Amazon, the multiplier effect will add an additional 5,000 to 10,000 new jobs to the local economy each year on top of the new Amazon jobs.

While the addition of Amazon workers will add to the D.C. metro area’s reputation as one of the top technology centers in the country, many of the new workers will be busy constructing the roughly 5,000 new single-family and multi-family residential units that will be needed to house the new workers. Other entrepreneurs will be providing support services and expanding retail and restaurant amenities.

At the same time, significant additional retail and office construction is underway in the Tysons and Reston areas. While vacancy rates have remained stable in those areas, new construction has largely kept a lid on rental rates for existing properties. Older, large office buildings have been particularly hard hit.

The region has become less dependent on the political whims of the federal government as businesses continue to diversify beyond the traditional government focus that historically has been the main driver of the local economy.

Economic fortunetellers warn that the good times are bound to end, and a new recession will soon follow, but its arrival date continues to be pushed out. In the meantime, Realtors® should dive in and be prepared to rise with the tide, as commercial real estate continues its economic expansion.
  • Global & Commercial Resources
  • Business Management
  • Frank Dillow

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