BOSTON -- SIGMA's Annual Meeting took place November 12-14, 2010 in Boston at The Westin Copley Place Hotel, and a variety of educational sessions were offered including the standing room only session, "Commercial Real Estate, Consumer Confidence and the Overall Economy." Moderated by Joe Petrowski, CEO of Cumberland Gulf, Mary A. Burke of the Federal Reserve Bank of Boston's Research Department provided an update on the economic recovery.
Introducing her, Petrowski told the audience it was just reported that, "consumer confidence ticked up for the first time in the past three months." Burke explained consumers are starting to come around, but the level is "nowhere near where it was. We went through a boom and bust cycle for the past couple of years," and although we were told the recession ended in June 2009, "most of us didn't feel that way."
Looking at commercial real estate, Burke noted the segment suffered just as much as residential, but that residential got more press. "The commercial property price index fell 44 percent from its peak and hasn't necessarily bottomed out yet," she noted. "Retail commercial real estate is down more than 60 percent and downtown office rents are down almost 20 percent from its peak."
Office rents lagged the rest of the recovery, but the decline is starting to taper off, she noted. While non-residential investment is worse than it was in the early '90s, office vacancy rates are not as high as they were back then.
"In the '90s office vacancy hit 20 percent, and currently we are at 16 percent," Burke said.
So what is holding the market back? Limited employment growth because jobs drive demand for office space and retail, she said. Also, both consumers and businesses are "hoarding cash," as savings rates are the highest they have been since 1998.
"Not only are we at a high level of unemployment, but people are out of work for a long time," Burke noted. "Right now, 42 percent of the unemployed have been out of work for 27 weeks or longer."
The good news is consumers are starting to come around, and retailers can start to predict where consumers will start spending more money based on the Consumer Confidence Index, according to Burke.
"Consumer sentiment helps forecast spending growth and GDP growth, and better than unemployment which is much slower moving," she said.