Commercial Real Estate Draws Energy from Residential
Commercial real estate is gradually waking up from a Rip Van Winkle-like slumber.
The first to climb out of a real estate recession is typically residential real estate. That has proven true in the most recent recession as well, and St. Mary’s County has seen a newly energized home building market in recent months.
And that energized home market may have the effect of jump-starting commercial projects as well.
When residential home building begins to take off, commercial investment generally follows, says Old Line Bank’s Margaret Sawyer, chair-elect of the St. Mary’s County Chamber of Commerce. “Builders that had been holding onto property are beginning to build,” she says, citing Elizabeth Hills in Great Mills as just one example of residential developments coming online.
On the commercial side, Ms. Sawyer says most activity is being driven by large developers. “We’re getting ready to have the new shopping center across from Wildewood, and the new movie theater – all large corporate construction,” she says. “I’m still seeing very little on the independent side. They’re kind of holding back – they need to be more comfortable with where the economy is going” before they commit to retail or office projects, she says, citing the lingering effect of sequestration and furloughs.
Their caution is understandable. During the last five years, “while we saw an increased number of hotels and chain restaurants, we also saw more ‘for sale’ signs on commercial properties than we had in a long time,” Ms. Sawyer says.
Nationally, signals are emerging that should eventually provide a local payoff. The Urban Land Institute’s Emerging Trends 2013 survey predicts modest gains in leasing, rents, and pricing across U.S. markets that will improve prospects for all property sectors, including housing. Developers and investors can look forward to better balance sheets but should adjust their expectations, ULI advises, as returns “continue to ratchet down to more realistic but relatively attractive levels.”
There’s better news for real estate brokers and agents who handle commercial transactions, too. The National Association of Realtors’ 2013 Commercial Member Profile, released at the end of May, reported that Realtors who practice commercial real estate reported an increase in annual gross income for the third year in a row.
On the banking front, Ms. Sawyer says she’s encouraged by an increase in commercial loan applications, some from small businesses and people interested in start-ups. With mortgage rates remaining low, for entrepreneurs in search of financing, “This really is a great time,” she says.
