Calculated Risk has a timely post, mining out of the Q4 GDP advance some interesting nuggets in regards to CRE. We covered hospitality last week, but you can clearly see the sharp decline in office, retail and hospitality investments after their peaks and the recession. Specifically hospitality investment is down 80% from its 2008 peak, multi-tenant retail is down 62% from a 2008 peak, and office investment is down about 61%.
The investments are all displayed as a percentage of GDP. And its important to understand that what this equates to is dollars spent improving or renovating existing spaces and structures, or building new supply. Since a sharp decrease in demand is what has pulled down the real estate markets, it stands to reason that the majority of the dollars invested have been mainly in the improvements and renovations category.
The good news that the historical pattern of investment flattening at the trough for 2-3 years will put us at about a 2013 or 2014 mark where we will see some significant growth in investment as a share of GDP. That meshes with my gut feeling, along with what we’ve been observing in Houston in terms of rents, existing supply, and replacement cost. This should be exciting, because it means increases in occupancy, and increases in deal velocity leading up to demand recovery driving some significant construction activity. And that construction activity will increase deal velocity more upon delivery. The light at the end of the tunnel is getting much brighter.