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Upswing in residential market spills into commercial

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Written by Daniel Phair, VP-Development (Indianapolis, IN)

Across many national news websites and in the local Indianapolis newspaper, there have been countless articles related to the reemergence of the housing market from the doldrums that have been seen over the last five to seven years. Just yesterday, the Indianapolis Star referenced that sales of existing homes in the Indianapolis metropolitan area were up 30.6% over where they were a year ago, and CNBC reported that home prices of existing houses were up 12.1% in April in the Top 20 metro areas across the US from a year ago. While there is a still long way to go towards reaching a point where the residential real estate market is fully stabilized in terms of pricing and supply and to a point where those opting to rent start seriously entertaining the possibility of buying a house, the signs of improvement are hard to ignore. Within the last month and a half, I have seen multiple ”˜Sold’ signs appear in front of houses only recently listed in neighborhoods throughout Indianapolis and have talked with many friends who have either just sold their house or who have just closed on the purchase of a new house.

The improvement to the housing market is not only seen by the ”˜Sold’ real estate marketing signs posted in front of homes, but in a lot of other areas of the economy, including the area of commercial real estate.

  • Suppliers of home building products, tools, appliances, etc. are growing and starting to enter into leases for new industrial warehouse space to make sure that they have the room to stock supply and keep up with the demand resulting from new home construction and renovations of existing homes.
  • Retailers’ interest in commercial land is starting to reemerge. Over the last five years, Home Depot opened a total of 20 stores, while this year they are planning on opening nine new stores and more than that number the following year. Their main competitor, Lowe’s, is buying Orchard Supply Hardware Stores as a way to get better traction with consumers in California as the residential market recovers there.
  • Neighborhood retail shopping centers are seeing increased occupancy to go along with the increased occupancy of nearby neighborhoods from new home construction, renovation of existing homes and/or the sale of distressed homes.
  • Some of the fastest growing employers on both the private and public side are very much a part of the housing market, increasing the demand for office space. For example, Stonegate Mortgage was the top growing private company in Indianapolis for 2013, according to the Indianapolis Business Journal, as they expand across the country.
  • As people feel better about the equity being restored in their houses, the purchase of other consumer goods and/or travel has increased, as reflected in the increase in overall consumer confidence by over 15 percentage points from last June 2012 to June 2013. A clear sign that travel has picked up is in the projected Hotel Occupancy Rates for 2013, which are on pace to reach levels that were realized before the recession.

While the reporting on the gains in home sales and prices usually fails to mention that we are still at levels that are quite a bit lower than where we were five to seven years ago, the signs of improvements are there and are beginning to help create some positive spill over into other segments of the economy.

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