The discrepancy between the commercial and institutional markets continues to widen. Key market drivers for the commercial (for lease) market continue to improve while the drivers for the institutional market continue to weaken.
In the commercial market, credit costs are steady at a low rate and REIT’s and many large banks are now actively seeking commercial mortgage business. Rents are rising and vacancies are falling although this is not yet reflected in the latest hard data through the 4th quarter. And the value of project starts has just turned up. Design work underway reported in the monthly AIA member survey has been improving since last fall. So further gains in project starts are expected.
Institutional starts are slipping lower under pressure from declining public funding although has not yet fully hit monthly construction spending reports. The various federal subsidy programs are nearing an end. Congress is unlikely to renew them and may cancel some of the remaining unspent funds. State spending cut to meet balanced budget requirements will continue into next year. Municipal spending is now also being cut as reserves are exhausted and state revenue sharing is being trimmed. Nonprofit funding is holding up better, although still slipping slightly, because of still expanding funding sources such as college tuition and hospital fees.
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