Wednesday, March 04, 2009

CRE: Investment in Hotels, Offices and Malls

by Calculated Risk on 3/04/2009 09:30:00 PM

There was a strong downward revision in non-residential structure investment in the Q4 GDP report. The CRE investment bust is here - and will get much worse based on the Fed's recent Senior Loan Officer Opinion Survey and the Architecture Billings Index.

Lodging Investment as Percent of GDP Click on graph for larger image in new window.

This graph shows investment in lodging (based on data from the BEA) as a percent of GDP. The recent boom in lodging investment has been stunning. Lodging investment is now at 0.33% of GDP - slightly below the all time high set in Q3 2008 - and preparing to cliff dive!

Note: prior to 1997, the BEA included Lodging in a category with a few other buildings. This earlier data was normalized using 1997 data, and is an approximation.

Investment in Malls Q4 2008Investment in multimerchandise shopping structures (malls) decreased in Q4 2008 to .21% of GDP, after peaking in Q4 2007 at .25% of GDP. This is a pretty steep decline, but now it appears that new mall construction is about to almost stop.

As David Simon, Chief Executive Officer or Simon Property Group, the largest U.S. shopping mall owner said a few weeks ago:

"The new development business is dead for a decade. Maybe it’s eight years. Maybe it’s not completely dead. Maybe I’m over-dramatizing it for effect."
Investment in Offices Q4 2008 The third graph shows office investment as a percent of GDP since 1972. Office investment decreased slightly in Q4 2008. With the office vacancy rate rising sharply, office investment will probably decline all this year.

Note: In 1997, the Bureau of Economic Analysis changed the office category. In the earlier years, offices included medical offices. After '97, medical offices were not included (The BEA presented the data both ways in '97).

Investment in all three categories - malls, lodging and offices - will decline sharply in 2009.