What's the Latest with the Commercial Real Estate Market
February 7, 2020
Welcome to the first installment of the year of my "What's The Latest with the Commercial Real Estate Market" posts. If you want to be notified every so often about when this article is coming, connect with and follow me on LinkedIn.
To dive deeper into the state of the commercial real estate market here in Tampa Bay and beyond, as well as the economy across the country as a whole, keep on reading. (We have graphs!)
TL;DR - the market is doing well. Keep on keeping on.
Part I: GDP
The commercial real estate market takes a lot of cues from the economy as a whole. When businesses grow and add new jobs, that's typically a very good sign for the commercial real estate market. By the end of 2019, the economy was performing solidly. Below is a graph of quarterly GDP growth rate for the last three years:
As you can see from the graph above, for 11 out of the last 12 quarters we had a GDP growth rate at or above 2% each quarter. Understanding that GDP isn't always the best measure of business growth and success, it is still an important metric for the overall health of the economy. And having such a healthy run at a solid growth rate usually means good things for the commercial real estate market.
Part II: Job Growth
One of the best indicators of success for the commercial real estate market is the number of jobs created by growing companies around the country. Simply put: more jobs means the need for more space to put those employees. When a company outgrows its space, that's music to the ears of those of us who practice commercial real estate. Growing and hiring can be challenging, but you would rather have that problem versus the opposite problem. Below is a graph of the monthly jobs created over the past four years:
From the graph above, 2019 was right on pace with the number of jobs created in 2017. While the number of jobs created was still below a remarkable high in 2018, the economy added, on average, about 180,000 new jobs per month in 2019.
Part III: Corporate Earnings
Companies don't spend money on commercial real estate unless their core products and services are making them money. The more cash a company has, the more likely they are to spend a portion of that on capital expenditures. One of the most significant - but also most important - capital expenditures a company can spend money on is commercial real estate. The chart below gives us a snapshot of corporate earnings over the last several years to see just how much money corporations have made:
The orange axis on the right hand side measures earnings per share (EPS) and the blue axis on the left measures the S&P 500 index. From this chart, we can see that corporate earnings have been rising quickly over the past four years. While there was a leveling off in the middle of 2019, most companies are still reporting record earnings. The question over the next few months and years becomes: what will companies do with all that extra cash?
Generally speaking, most of us are cautiously optimistic about the market in 2020 and beyond. While the financial recession of 2008-09 is still on everyone's mind, we aren't seeing any major warning signs of another meltdown. So long as the fundamentals stay strong and everyone keeps doing smart, responsible business we'll be in for a good run.
Here's to the fundamentals.
Based in Downtown Tampa, Fla., Nico Hohman is an award-winning real estate broker, business growth and workforce housing advocate. Nico currently serves as the Director of Commercial Real Estate with Tomlin Commercial. Mr. Hohman was the Founder of Hohman Homes and HHRG, residential and commercial real brokerages based in Tampa Bay with over 30 employees. Nico is the Chairman of the Hillsborough County Historic Resources Board; a Director at Stellar MLS in Orlando, Fla.; and a former member of the Board of Directors at Greater Tampa Realtors. Schedule a time for Nico to speak to your brokerage, company, or association by connecting with him on LinkedIn.