Latest Commercial Real Estate Market News & Investment Advice in Los Angeles

The Recovery Continues

December, 2017
by Karl Niehaus, President, CREI

Commercial Overview:

RETAIL SALES HIT A RECORD of $5.7 trillion in 2017. That's better than pre-recession highs of $4.4 trillion in 2007, and 42% higher than 2009, which was $4.06 trillion. The increased sales are great for commercial real estate but retailing is undergoing significant changes. The 1st change is technological, with shoppers expecting retailers to offer a convenient online alternative as well as the physical store. Stores that don't adjust will go the way of Toys R Us, Circuit City, Borders, and Blockbusters. Most stores however, are adjusting while still trying to get shoppers into their stores. They are using a combination of branding, service, and pricing to convince shoppers to get dressed, get in their cars, fight traffic and find parking to shop. Currently online shopping, and potentially in the future 3D printing, allowing people to print small toys and other objects, are affecting the need for retail space. As a result, retailers are less likely to build new stores which hurts commercial real estate, neighborhood shopping centers, and jobs. The 2nd change is in consumer behavior. Retailers have found that they have to offer service, convenience and lower prices to entice shoppers. Off-price retailers like Marshalls, T.J. Maxx, and Ross Stores are booming at the expense of department stores, as they have found that niche. Expect to see more stores, like Home Depot, tie their online websites to their stores. That way, they can offer the best of both worlds: the convenience of online shopping with the customer service of the local neighborhood shop.

Economic Overview:

THE RECOVERY CONTINUES as 2017 has been another solid year. Real GDP growth has averaged about 2.2% year-over-year and we are on pace to add another ~2m jobs this year. While the rate of job growth has slowed, it's impressive that we're still adding this number of jobs in the 8th year of a recovery. The unemployment rate was down to 4.1% in October 2017, not only a new low for this cycle but the lowest level since 2000. All of this has aided spending as outlined below, which is helping commercial real estate.

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