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Commercial real estate on the rise

By: 12 November 2011 4 Comments

Here’s something that may or may not surprise some people – the demand for new commercial and multifamily units almost doubled in the third quarter.

According to the national Mortgage Bankers Association, commercial and multifamily residential loan applications were 98 percent higher in the third quarter this year compared to the same time last year. That increase was driven by gains throughout virtually all commercial real estate categories – a 406 percent increase in loans for hotel properties, a 164 percent increase in loans for retail properties, a 103 percent increase in loans for office properties, a 39 percent increase in loans for multifamily properties, a 3 percent decrease in industrial property loans and an 8 percent decrease in health care property loans.

The question, of course, is what those gains signify. Obviously, increased commercial activity is a great thing at a time when high unemployment rates are a concern. In Arkansas, the unemployment rate at the end of the third quarter was 8.3 percent – up from 7.8 percent in September 2010. Nationally, the unemployment rate in September was 9.1 percent, down from 9.6 percent at the end of the third quarter last year.

Given those high unemployment rates, then, there’s reason to be more than a bit optimistic when faced with the prospect of commercial development increasing sharply in the third quarter. High levels of construction generally signal new jobs creation, so here’s hoping that’s what we’ll see before long.

The 39 percent increase in loans for multifamily properties is noteworthy, but not entirely unexpected. High foreclosure rates have grabbed headlines for about three years now, thus paving the way for a demand in rental properties.

Residential property managers throughout Arkansas have confirmed they’re getting a lot of requests for rental properties and – in some areas – the supply has outpaced demand. Indeed, when people lose their homes through foreclosure, they’ll often look to rent homes or apartments until they can get their finances and credit in shape to again purchase houses.

Speaking of purchasing homes, the Mortgage Bankers Association has reported slight gains or losses in residential mortgage applications all year long. We’ve not seen those numbers trend consistently higher, lower or on par with last year’s results throughout 2011.

The ever correcting market has resulted in downward pressure on prices and some gains in sales here and there as people take advantage of good list prices and historically low interest rates. The Mortgage Bankers Association expects interest rates to remain low through 2012 and for sales to gradually increase until they stabilize and prices start to go up a bit. The recovery in the residential market, according to the association, will likely hit full stride in 2013.

Meanwhile, keeping an eye on the commercial real estate market can give an indication of when residential lending might increase significantly. After all, commercial construction is tied to job growth and people who have jobs – and are secure in them – are the ones who tend to purchase houses.

Home Sweet Home is written by Ethan C. Nobles and is sent weekly to publications throughout the Natural State on behalf of the Mortgage Bankers Association of Arkansas.

About: Ethan C. Nobles:
Benton resident. Rogue journalist. Recovering attorney. Email = Ethan@FirstArkansasNews.net.

4 Comments »

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    [...] Commercial real estate on the rise Posted by on November 14, 2011 Leave a comment (0) Go to comments Commercial real estate on the rise That increase was driven by gains throughout virtually all commercial real estate categories – a 406 percent increase in loans for hotel properties, a 164 percent increase in loans for retail properties, a 103 percent increase in loans for office … Read more on First Arkansas News [...]

  • Real Estate Broker said:

    While it is encouraging to learn that commercial real estate is on the rise, I hope the trend can continue even when Europe begins to feel their pain and have to take medicine. The ripple effect is always something that scares me as a Real Estate professional, and I don’t like to get to ahead of myself with optimistic thinking. What encourages me about our area is that while many people have had their homes taken back by the bank, these folks are still able to be given a chance to rent while rebuilding their credit. All that being said, I have seen residential rental prices rise, creating a new bubble of sorts. I wonder how long it will take most of the people who are paying too much for rent, to be able to get financing from a bank in order to purchase once again. I guess only time will tell, but it’s great to see things looking up for a change.

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