Feedback: September 2012

Question: Commercial real estate hit its low several months later than residential. Now that residential is coming back, how will that affect the commercial real estate market?

Jay Kramer
Shareholder
Fennemore Craig
Sector: Law

The housing industry is, traditionally, one of the mainstays of growth in the Arizona economy. In addition to direct job creation in construction, a housing recovery also indirectly affects job creation in service industries, from mortgage lending to architecture, which creates a need for more office space, and job creation in services to homeowners such as landscaping and home repair. A housing recovery and the perceived increase in wealth creates optimism so that people are once again dining out, making capital purchases, vacationing, making home improvements and otherwise spending money, all of which create demand for the retail and hospitality space as well as distribution/warehouse/fulfillment facilities.

However, in order to have sustainable growth in the commercial real estate market (as well as residential), we need primary job creation, i.e., businesses that generate a substantial portion of their revenue from exporting goods or services outside of the community, which brings new money into the community and creates wealth for residents of the community. The housing industry is not self-sustaining without other business sectors creating new primary jobs.

Jay Kramer chairs Fennemore Craig’s real estate practice, one of the largest in the Southwest. He practices in the areas of real estate transactions and finance, and represents a wide variety of national and local homebuilders, planned community developers, commercial and industrial developers and financial institutions. Kramer is one of the leading Arizona attorneys with respect to the formation of community facilities districts to finance and construct regional public infrastructure facilities.

Thad W. Seligman
President and CEO
NAI Horizon
Sector: Real Estate

While there is a psychological lift from the recovery in sales velocity and price increases in the residential sector, that lift does not drive demand for lease space in the commercial sector. The commercial market will begin its recovery when the demand for office, retail and industrial space picks up and we see a resulting positive net absorption of vacant space. Any meaningful increase in demand will be driven solely by job growth, which at the current time is not sufficient enough to swing the market.

The uncertainty in the outcome of the upcoming elections has caused a majority of business owners to pause until the direction of the country is better defined. Too many businesses are unwilling to move, expand or make capital investments in their businesses until the elections are over and they know what the rules of the game will be. For the commercial sector to improve, we must see real job growth return to the economy, both locally and nationally.

Thad Seligman has been active in the commercial real estate industry for 40 years, owning and/or managing commercial real estate brokerage firms, property management companies, appraisal companies and a retail development firm. He is internationally recognized for his expertise in commercial real estate sales and development. He sits on the NAI Global Leadership Board of Directors and is a partner and CEO of Horizon Real Estate Group, which owns NAI Horizon Brokerage Company, NAI Horizon Property Management Company and NAI Horizon Valuation Group.

Howard G. Weiner
President and County Manager
Lawyers Title of Arizona
Sector: Real Estate

The return of a healthy commercial market is not necessarily tied to the return of a stronger residential market; however, history does show that the rebound of the residential market usually precedes the rebound of the commercial market. The return of a strong commercial market is tied to employment, consumer confidence in both the private and public sector, expansion of business and the growth of both small and large companies. Once the above referenced factors start taking shape, the commercial market will see absorption of lease space and purchasing of retail, office and industrial properties for both use and investment. The stronger residential market is an indicator that the commercial market will follow, but there is certainly no way to know the time frame. The commercial real estate rebound is highly dependent on both political and economic factors and could be impacted by the upcoming election and global events evolving in Europe and Asia.

Howard Weiner, president and county manager of Lawyers Title of Arizona operations in Maricopa, Pinal and Santa Cruz counties, has lived in the Phoenix area since 1958 and is an Arizona State University alumnus. Lawyers Title, founded in 1925, is a member of the Fidelity National Financial, Inc. family of title companies, which collectively represent the largest title insurance and escrow services company in the world.