Commercial Real Estate Showing Progress,

Moving in Right Direction

HARTFORD — The second quarterly survey on Connecticut real estate conditions conducted jointly by the Connecticut Business & Industry Association (CBIA), the Connecticut Economic Resource Center (CERC), and DataCore Partners LLC, reflects modest improvement within the state’s commercial real estate sector.

“US economic recovery officially commenced in June 2009, but has yet to filter down in a large way here in Connecticut over the last year. In a word, improvement can be characterized as being ‘mild’ as the state’s economy continues to feel the aftershocks of one of the worst economic downturns dating back to World War II,” stated Peter Gioia, vice president and economist at CBIA.

According to the fourth quarter CT COMpREhensive survey results, the Farmington Bank/O’Connor Davies Munns & Dobbins LLP Commercial Real Estate Index recorded mild improvement, climbing to an index level of 11.8, up almost four index points from the previous quarterly reading of 8.3.

The latest data reflects a market that is still facing challenges in the form of cautious consumer spending, slow job expansion, and possible shifts in buying patterns as consumers felt more comfortable with Internet purchases during the holiday shopping season.

The Current Conditions Index component recorded at 9.8, up from 7.5 last quarter, while the Future Expectations Index component, measuring expectations for the commercial marketplace three months from now, rose from 9.1 last quarter to 13.7 in the October–December timeframe.

“Results from our second quarterly survey are encouraging. We’re clearly moving in the right direction given commercial real estate fundamentals, but progress thus far has been slow. Hopefully, we’ll build on these numbers as domestic economic recovery becomes more tangible,” said Don Klepper-Smith, chief economist and director of research at DataCore Partners.

Other findings include:

*Respondents continued to be somewhat pessimistic about the outlook for the Connecticut economy over the next three months. Only 8 percent thought the state’s economy would be “excellent” or “good.” Local economists have stated that the levels of consumer and business confidence, as well as job growth, will be instrumental in bolstering economic activity in the first half of 2011.

*Connecticut’s office market is now starting to benefit from modest new employment growth, but demand for labor remains sluggish as the overall pace of economic growth has been slow relative to prior economic recoveries. Many area employers seem to be adopting a “wait and see” approach to permanent future hires. Only seven percent polled characterized current conditions as “good” or “excellent,” while 52 percent stated that conditions were “fair.”

*Connecticut’s industrial real estate market is starting to benefit from increased demand for Connecticut exports, which rose abruptly in the second quarter. Only ten percent characterized current conditions as “good” or “excellent,” while 47 percent stated that conditions were “fair.”

*Connecticut’s retail real estate market is hopeful that this last holiday shopping season was better than last year as US retailers are anticipating a gain of about three percent, but retailers face continued challenges in declines of consumer spending power and sluggish job growth. Only seven percent characterized current retail conditions as “good” or “excellent,” while 48 percent stated that conditions were “fair.”

*Connecticut’s investment real estate environment appears to be improving based on prospects for new growth and cheaper capital, despite the sluggish economy. About 16 percent characterized current investment real estate conditions as “good” or “excellent,” while 46 percent stated that conditions were “fair.”

*The fundamentals around Connecticut’s residential real estate continue to improve as median sales prices are firming and sales volumes are posting double-digit gains relative to one year ago. About 12 percent characterized current residential real estate conditions as “good” or “excellent,” while 53 percent stated that conditions were “fair.”

“The good news is that many local economists now believe that the Connecticut economy is poised to build on economic recovery heading into 2011 as the state has added 8,300 new jobs dating back to last December,” commented John Patrick, chairman, president, and CEO of Farmington Bank.

Alissa DeJonge, director of research at CERC, also noted that the expectation is that gradual improvement in the state’s economy is likely to result in tangible job growth in coming months, leading to improved gains in incomes, greater levels of consumer spending, and healthier levels of export activity.

“Barring an unforeseen exogenous shock within the domestic economy, the hope is that Connecticut commercial real estate conditions are apt to improve in coming quarters,” added Bruce Blasnik, partner at ODMD.

The survey was conducted during the fall of 2010 and polled real estate professionals in all eight Connecticut counties, asking for opinions and perspective regarding local real estate conditions in both the residential and commercial markets.

A total of 177 respondents participated in the fourth quarter 2010 survey, including real estate brokers, real estate developers, bankers, appraisers, and economic development officials from around the State.

The executive summary of this quarter’s CT COMpREhensive and Farmington Bank/ODMD Index is available at www.cerc.com and www.cbia.com.