Economist: Commercial real estate on mend, but jobs lag

NORFOLK

The nation's commercial real estate market is showing signs of health, but the economy will take years to recover jobs lost during the recession, an economist for Wells Fargo & Co. said Thursday.

"If you look at the broader categories of commercial real estate, they all show improvement," said Mark Vitner, managing director and senior economist for Wells Fargo.

Vitner spoke to several hundred commercial real estate executives at a luncheon of the Hampton Roads Association of Commercial Real Estate in Norfolk. Improvement in commercial real estate is being led by the apartment market, Vitner said. Rents have risen, rent concessions have fallen and sale prices for apartment buildings have increased, he said.

"The reason it looks better for commercial real estate is that we've had less government meddling," he said. "There was no tax incentive for a first-time renter of an apartment or a first-time lessor of an office. So we didn't have distortions in the sale prices of properties."

Industrial space also has benefited from an increase in trade activity. But the market for office space throughout the country is still on uneven footing, Vitner said.

"We have seen leasing activity pick up, because enough people have sensed the market has bottomed and they want to upgrade their space," he said.

But Vitner dashed any hopes of a quick rebound in the jobs market.

"This recovery in jobs is going to be much slower than what we've seen in the past," he said.

As businesses expand in the coming years, they're much more likely to do so by purchasing new equipment as opposed to hiring more workers. Using what he called the "most optimistic assumptions," he predicted it would take more than six years for the country to replace all of the jobs that were lost in the recession.

"One of the things that troubles me about the last two economic expansions is that we had relatively sluggish job growth but still had decent GDP growth," Vitner said, referring to gross domestic product. "And the economy was being driven by very easy credit."

Credit isn't likely to be as easily available this time around, Vitner said, making it difficult for businesses to expand.

While businesses will continue hiring workers at a slow pace, that's likely to be offset by layoffs by government entities trying to cut their budgets, he predicted.

Josh Brown, (757) 446-2318, josh.brown@pilotonline.com