Notes from the CEO

Commercial Real Estate Market Hinges on So Much More

Did you see mention of a new white paper that says commercial real estate across the country is already in an upswing? This encouraging news is courtesy of Forward Management, LLC. Their latest whitepaper, titled Inflection Point: The Start of a New Cycle in Real Estate? states that a new, upward cycle is starting in commercial real estate markets around the country because of simple supply and demand. Demand is slowly growing with supply is stagnant.

Of course they are trying to sell CRE investments but they make some interesting points. The authors say that a good markets are those experiencing a combination of job growth, business activity, and population growth – this is what drives demand in commercial real estate. You don’t have to be a rocket scientist to get this stuff, but they also point out that, through their research, “the cities that are recovering most rapidly are the ones with jobs tied to global trade, technology and financial services.”

While slow growth is better than no growth, the authors are the first to state that this is not happening in all markets. Rather, it’s occurring in major cities – “technology corridors (that) are already recovering as job growth fuels demand across commercial property sectors.” The image below paints a pretty good picture of where and when the job recovery is happening.

Unfortunately Sacramento does not make the list of “gateway cities” as they’re called in the paper. And I’m afraid they’re absolutely right. We’re working toward growth but it’s not happening yet. The hole we have to dig out of in the local commercial real estate market is huge. That’s not the most cheerful perspective I know but I will add this – while recovery isn’t just around the corner for the capital region, it’s not out of sight.  There is much work being done to foster and sustain growth in global trade, technology and financial services industries here at home. Five Star Bank proudly working to be a part of the recovery of our region on all levels.   

What do you think? Do you see many positive signs of growth in the commercial real estate market? Do you feel that global trade, technology and financial services are the areas the Sacramento Region needs to focus on?

I’d like to hear your thoughts.

James E. Beckwith
President & CEO
Five Star Bank
jbeckwith@fivestarbank.com

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