How is the 2014 commercial real estate market stacking up?
So far, so good indeed: sales of Frederick’s commercial real estate market are posting double-digit gains over last year. The total dollar volume of sales for the first half of 2014 increased by 15% over the same time period last year, and the total number of transactions increased by 12%.
Here at MacRo, our sales and leasing activity is up over last year as well, and there is definitely a positive buzz in the air when local commercial real estate brokers gather to network. The biggest complaint I hear on a consistent basis is the insufficient inventory of commercial properties on the market.
This is all good news, and it’s certainly tempting to anticipate that double-digit gains in Frederick’s commercial market will continue into 2015 and beyond, but there are still uncertainties facing the national and local economies.
A big one putting tremendous pressure on the commercial office market is jobs. On Wednesday September 17, the powers that be at the Federal Reserve abandoned their typically passive-aggressive communication style to declare that it will be “a considerable time” before we see a hike in interest rates, citing a cause as “significant underutilization of labor resources.”
Yes, the labor market is underutilitzed, but it is also evolving, and in such a dramatic way that it’s hard to imagine how it will ever look the same as it did before the Great Recession. (If that is the case, the Fed and their economists desperately need a new “jobs” measuring stick before the government starts passing ineffective and potentially damaging legislation trying to prop up an obsolete jobs market model…but I digress.)
The trickle-down effect of a massive increase in part-time and self-employed workers (along with rapid technological advancements) is that office use is also changing dramatically, both in size of space and function. The sluggish economic recovery and evolving labor market are wreaking havoc on office vacancy rates throughout the U.S., and Frederick is no exception. No one really knows where the dust is going to settle or what the “new normal” will look like for the office segment. A crystal ball would come in very handy for office building developers right about now.
On a local level, the November election will mark a new era in Frederick County government, as Frederick begins to govern itself in a very different way. The outcome of this election will determine whether the next four years will be government by gridlock or a seamless, collaborative transition. It may also result in yet another wild pendulum swing between growth and no-growth administrations, which could significantly impact Frederick’s commercial real estate recovery (as it depends heavily upon sustained political stability). Timing-wise, this shift to charter government is a bit nerve-wracking for Frederick’s business community.
Despite these and other uncertainties in the local and national economies, activity continues to chug along pretty well in Frederick’s commercial market. We will watch carefully this fall to see if underlying market fundamentals continue to strengthen.
Note: Statistics provided for commercial property sales in this report are based on thorough research of every recorded commercial sales transaction listed in SDAT for the quarter reported, and are deemed reliable.