ULI Center for Capital Markets and Real EstateThe top 12 trends in this month’s Barometer point to an evolving confidence in the economy, weakened signals in the capital markets, mixed directions in property fundamentals, and a sustained spark in the weak housing market. Compared with a year ago, 69 percent of the key indicators in the Barometer are better and 31 percent are worse.

Note: More commentary and data can be found throughout the tabs and in the accompanying tables.

In those top 12 trends:

  • Employment growth in February exceeded 220,000 for the third-straight month, due to broad-based growth in the private sector and relatively modest drag from the public sector. Still, at February’s growth rate, it would take almost two years to regain the 5.3 million jobs lost in the past four years. The unemployment rate is at its lowest level in three years, but did not change in February because, encouraged by job growth, more people entered the job market, expanding the labor force.
  • Fourth-quarter 2011 GDP growth was revised upward and is at its highest level in a year and a half. GDP growth is now above its long-term quarterly average.
  • Consumer confidence jumped to its highest level in a year, although it is still 19 percent lower than four years ago; retail sales were strong; total construction put in place, although at a two-year high, was essentially flat with the previous month and off over 30 percent from its pre-recession high.
  • Commercial property prices were essentially flat in December, according to the latest repeat-sales indices, and remain off by more than 30 percent from their pre-recession highs. Estimates of REIT portfolio market values were effectively unchanged in February, as was the case in December and January.
  • NAREIT returns in January were up in the industrial and retail sectors, and down in the office, lodging, and apartment sectors.
  • Commercial property transaction volumes fell in January after an end-of-year spike. CMBS issuance in February plummeted for the second-straight month, continuing the volatility of the past 12 months, while delinquency rates declined.
  • Bank real estate loan delinquency rates continue to edge down. Still, delinquency rates for commercial mortgages, multifamily mortgages, and construction/development loans remain above their long-term quarterly average (since 1991) by 33 percent, 70 percent, and 163 percent, respectively.
  • Office vacancy and industrial availability both showed modest improvements in the fourth quarter and compared with one year ago; retail availability rates remained unchanged for the third-consecutive quarter and have increased from one year ago. Apartment availability rates inched up in the fourth quarter but remain lower than one year ago.
  • Office and apartment rents increased in the fourth quarter and are up compared with one year ago. Retail and industrial rents are down in the quarter and over the year.
  • Permits and starts in the single-family industry are at a 20-month high and permits and starts in the multifamily industry are at a 36-month high, although activity in both industries remains slow by historic standards.
  • Months’ supply of both new and existing homes are now below their long-term monthly averages as sales of existing homes increased and inventories of new homes have decreased. Prices of existing homes declined while prices of new homes increased.
  • Total foreclosure filings are up in January after reaching their lowest monthly levels in 49 months in February.



Excellent news in the economy came in fours: fourth-quarter GDP growth, already the highest in a year and a half, was revised upward; employment growth was strong in February for the third-straight month; retail sales were solid; and consumer confidence jumped. In addition, private construction value was at a two-year high, although still low by historical standards. S&P returns were healthy for the month, but year-over-year returns remained anemic.

February’s net job growth of 227,000 jobs constituted the third-straight month in which job growth exceeded 220,000 and the fourth-straight month in which job growth exceeded the historical average monthly growth (since 1970). Public sector job losses, previously a major drag on net job growth, have declined significantly over the past 12 months. Still, the country has 5.3 million fewer jobs than it did four years ago. At February’s growth rate, it would take almost two years to regain just that number of jobs; this timeline does not address the additional employment needs of a growing population. Private sector job gains in February occurred in professional and business services, health care and social assistance, leisure and hospitality, durable goods manufacturing, trucking, wholesale trade, and mining. The overall unemployment rate remained steady at 8.3 percent in February—the lowest rate in 36 months—because, encouraged by job growth, more people entered the job market, expanding the labor force.

The second estimate of fourth-quarter 2011 GDP growth is 3.0 percent, the highest growth rate in six quarters. The GDP growth rate, which was almost flat in first-quarter 2011, increased steadily in all subsequent quarters and now is above the long-term quarterly average (since 1970). Factors contributing to fourth-quarter growth were private inventory investment, personal consumption of durable goods, exports, residential fixed investment, and nonresidential fixed investment (primarily equipment and software). These were partially offset by declines in federal, state, and local government spending and a slowing in nonresidential fixed investment. Imports, which are a subtraction in the GDP, increased.

The Consumer Confidence Index rose by 16 percent in January to 70.8, its highest level in a year and its third highest in four years (since February 2008). It is now 81 percent of the January 2008 level of 87.3. Total retail sales in January were up a strong 0.4 percent, the result of healthy sales growth in electronics, groceries, and general merchandise, offset primarily by sales declines in gasoline but also motor vehicles. Excluding gasoline sales, retail sales in January were up a very strong 0.8 percent. Retail sales volume—$401.4 billion—is 5.8 percent higher than one year ago but exceeds the pre-recession peak of $378.4 billion (in November 2007) by only 6.0 percent.

The value of private construction put in place was unchanged in January, so the month’s figures now tie those of December as the highest monthly value in two years. Public construction put in place barely decreased in January and is at about the monthly average for 2011. December’s total construction value of $827.0 billion is down 32 percent from the pre-recession high in March 2006.

Inflation, as measured by the Consumer Price Index, increased 0.2 percent in January, after little or no change in the previous three months. For the past 12 months, the CPI has risen 2.9 percent.

Monthly S&P 500 returns were healthy in February at 4.3 percent, similar to the previous month, continuing the welcome recovery from the two fairly flat months in November and December. However, year-over-year returns were down from those of the previous month and remained weak at 3.4 percent.

Real Estate Capital Markets


Real estate capital market indicators weakened in this month’s Barometer. Prices remained essentially unchanged for investment-grade property, indicated by repeat-sales indices and estimates of REIT portfolio market values. Repeat-sales indices for general-grade property show an almost unperceptively small decline in prices. NAREIT returns were negative for three sectors, although strong in the industrial sector. Transaction volumes fell below their historical monthly average (since 2001); CMBS issuance fell to one of its lowest levels in the past 12 months, but delinquency rates continue to move down.

Capitalization rates, as reported by Real Capital Analytics, fell slightly from 7.07 percent in December to 7.02 in January. As reported by NCREIF, capitalization rates increased from 5.81 percent in the third quarter to 6.03 percent in the fourth quarter. Third-quarter cap rates had been at their lowest level since the third quarter of 2008.

Commercial property sales volumes
(excluding land and hotels) fell by more than one-half to $11.7 billion in January after an end-of-the year spike to $29.9 billion in December, according to Real Capital Analytics. The monthly average sales volume, excluding this spike, has been $13.8 billion over the past year. In January, the office sector was the most active, with 40 percent of the transaction volume, followed by apartments (32 percent), retail (16 percent), and industrial (12 percent).

The ten most active sales markets in the past 12 months accounted for 46 percent of all transactions; they were, in descending order, Manhattan, Los Angeles, Chicago, the Virginia suburbs of Washington, D.C., Boston, Dallas, Houston, San Francisco, Atlanta, and San Diego, according to Real Capital Analytics. Over $5.34 billion in transactions have been recorded in each of these cities since February 1, 2011.

The Investment Grade Index of the CoStar Commercial Repeat-Sale Indices was essentially flat in December after three straight months of growth. (These indices are based on a repeat-sales methodology that tracks transactions over $100,000 and includes land sales, with a two-month lag.) Values are down 31 percent from the peak value in June 2007 but up about 3.4 percent from a year ago. The General Grade Index of the CoStar Commercial Repeat-Sale Indices slid just 0.4 percent after a flat November ended seven months of growth. The index is now down 34 percent from its peak value in August 2007 and down 0.4 percent from a year earlier.

The GSA Commercial Property Price Index, based on estimates of private market values for REIT portfolios, was effectively unchanged in February, as it has been since September. Over the past six months, the GSA Price Index has increased only 1 percent, although it has increased 11 percent over the past 12 months, most of growth occurring in late winter and early spring 2011. It is now down just 8 percent from its peak value in August 2007.

(Note: The Moody’s/REAL Commercial Property Price Index, previously reported in Barometer, is no longer produced.)

As presented in last month’s Barometer, the NCREIF Property Index turned in a positive fourth quarter with total returns of 3.0 percent, sustaining the positive returns that began in the first quarter of 2010. The capital appreciation component was 1.5 percent for the quarter. Total 12-month returns are now 14.3 percent. Returns for the quarter by property sector range from 2.1 percent for the lodging/resorts sector to 3.5 percent for apartments.

Returns in the REIT sector were low at 0.9 percent in February, following January’s strong returns of 6.4 percent. One-year returns are now at 4.8 percent. Total returns for the month by property sector range from –3.8 percent for the apartment sector to 4.7 percent for the industrial sector.

CMBS issuance
fell from $1.35 billion in January to $830 million in February, according to Commercial Mortgage Alert. According to Trepp LLC, CMBS delinquency rates declined to 9.37 percent in February from 9.52 percent in January, matching the June 2011 rate as the lowest level in the past 12 months.

 Bank real estate loan delinquency rates continued to fall in the fourth quarter. Commercial and multifamily mortgage delinquency rates are now 3.76 percent and 2.53 percent, respectively. Construction and development loans have the highest delinquency rate at 13.44 percent, substantially above the quarterly historical average (since 1991) of 5.1 percent.



Although activity in the multifamily industry remains low by historical standards, monthly permit and start activity are both at about a three-year high. Activity in the single-family home industry also remains low by historical standards, but the monthly permits and starts volumes in January were at their highest level in nearly 20 months. Sales of new single-family homes, already at their lowest level since 1963, slid further while prices edged up. Sales of existing single-family homes rose and were above their historical average, and the National Association of Realtors (NAR) Index of Pending Sales fell. The prices of existing homes fell in December, according to all sources. The one data source for January, reporting on activity throughout the country, showed a further decline in existing home prices.

The S&P/Case-Shiller Index for existing home prices moved down 1.1 percent in December, the fourth-straight month of decline, bringing it to 34 percent below its peak in July 2006 and the lowest level since then. (This index, a composite of repeat transactions in 20 cities, is reported monthly as a three-month moving average, with a two-month lag.) The Federal Housing Finance Agency House Price Index (HPI), which has been undulating since March, shifted very slightly downward in December; it is down 19 percent from its peak in June 2007 and is 2.0 percent above its lowest level (in March 2011) since then. (The HPI covers repeat transactions in the entire country and is reported monthly with a two-month lag.) National Association of Realtors data (which report individual, unpaired transactions for the entire country) for January show a price decline of 5.0 percent. NAR’s December data showed a decline of 0.9 percent in the median price of existing single-family homes, following the only positive month in five months. Median prices for existing single-family homes stood at $154,140, 30 percent below the peak in 2006, and are at their lowest level since then.

Median prices for new single-family homes moved up just 0.3 percent in January to $217,100. Prices are down almost 10 percent from the same period one year ago and down 12 percent from the peak in 2007.

Single-family building permits were up 1.4 percent in January (based on a three-month moving average) to 441,000, the highest monthly permit volume in 19 months. Still, January’s permit numbers are 75 percent below the pre-recession high in November 2005. Single-family starts rose 5 percent in January (on a three-month moving average) to 493,000, the highest monthly starts volume in 20 months, although the figure remains 72 percent below the pre-recession high in November 2005.

Sales of new single-family homes
declined by 0.9 percent in January. Both new single-family home sales volume and inventory are still at lows not seen since record keeping began in 1963. For monthly sales, this has been true for the past 21 months; for monthly inventory, this has been true for the past 11 months. Sales are now 77 percent below the pre-recession high in July 2005.

The number of existing single-family home sales (seasonally adjusted) increased 3.8 percent in January to 4.1 million. Sales seesawed throughout 2011, but January’s figures now constitute the highest monthly sales volume in 20 months and are up 2.3 percent from a year earlier; January’s sales and those in 12 of the past 14 months exceeded the long-term monthly average (since 1970). Even though inventory increased slightly, supply fell to 6.1 months, 16 percent below the long-term average. January’s monthly sales were 36 percent below the pre-recession high in September 2005 but a strong 39 percent above their lowest level (in July 2010) since then. The forward-looking NAR Index of Pending Sales (of existing single-family homes, condos, and co-ops) increased 2.0 percent in January and is now at its highest level in 21 months, when the first-time homebuyer credit expired (April 2010).

Multifamily building permits increased 2.4 percent to 212,000 in January (based on a three-month moving average), bringing monthly permit volume to a 38-month high. Multifamily housing starts remained stable in January at 188,000, their second-highest monthly level in 38 months (lower only than November figures). Existing condo sales rose 8.3 percent to 520,000, 7 percent above the long-term monthly average (since 1989); with a decrease in inventory, supply declined from 7.0 months to 5.8 months, 23 percent below the long-term average.

January was the best month for housing affordability since the NAR began its index in 1989.

Foreclosure filings—default notices, scheduled auctions, and bank repossessions—increased by almost 3 percent in January from a month earlier to 210,941, according to RealtyTrac, although January’s total was down 19 percent from a year earlier. RealtyTrac  expects foreclosures to increase in the coming months, “especially given the finalized mortgage and foreclosure settlement reached in early February between 49 state attorneys general and five of the nation’s largest lenders. The settlement sets forth clear guidelines for lenders and servicers to follow when foreclosing, which should allow them to push through some of the delayed foreclosures from last year.”

Home mortgage rates (30-year fixed) fell in February to 3.89 percent, the lowest monthly rate since record keeping began in 1971.



Office rents continued a slow climb in the fourth-quarter of 2011; apartment rents have increased for seven straight quarters and are now above their pre-recession peak. Industrial and retail rents continue to decline, although the pace is slowing. Hotel revenue per available room (RevPAR) increased from the same quarter in the previous year. Office vacancy and industrial availability rates continued their slow six-quarter descent, while retail availability stayed at its highest level on record (since 1989) for the third-straight quarter and apartment vacancies inched up from their post-recession low. Fourth-quarter hotel occupancy improved from the previous year. Completions in all sectors are extremely low by historical standards, although the apartment sector is the strongest at about one-third its long-term average.

Office vacancy rates
stood at 16.0 percent in the fourth quarter of 2011, down slightly from 16.2 percent in the third quarter and 50 basis points below the figure for the same period one year earlier, according to CBRE. Rents crept higher for the fourth-straight quarter and are up 3.0 percent from a year earlier. Net absorption stood at 8.99 million square feet of space, almost tripling that of the previous quarter, while completions remain low at 12 percent of the long-term average (since 1985).

Retail availability rates
 stood at 13.2 percent in the fourth quarter of 2011, registering no change for the third-straight quarter, and are up 20 basis points from the same quarter one year earlier, according to CBRE. Rents continued their four-year slide in the fourth quarter and are off 2.2 percent from a year earlier. Net absorption was down from the third quarter but positive for the second-straight month, at 2.8 million square feet, and completions were steady at 19 percent of the long-term average (since 1980).

Industrial availability rates
stood at 13.6 percent in the fourth quarter of 2011, continuing their slow but consistent six-quarter decline; rates are now down 70 basis points from the same quarter a year earlier. Rents stayed about the same and are off 1.0 percent from a year earlier. Net absorption was strong at 27.6 million square feet, although down from the previous quarter, and completions were up, although they are only at 24 percent of the long-term average (since 1980).

Apartment vacancy rates
 edged up to 5.2 percent in the fourth quarter of 2011 from 5.0 percent in the third quarter, though rates are 80 basis points lower than for the same quarter a year earlier. Rents were up 1.4 percent in the fourth quarter and are 4.9 percent higher than a year earlier. Completions in the fourth quarter of 2011 were at about the same level as the previous quarter and at 34 percent of the long-term average (since 1994).

Hotel occupancy rates stood at 55.5 percent in the fourth quarter of 2011, up from 53.4 percent in the same quarter a year earlier, according to Smith Travel Research, while the RevPAR Index was up 7.9 percent from a year earlier.