Rising Markets’ Resilient Performance

The latest issue of Fortune magazine declares that Texas just surpassed New York as home to the most Fortune 500 companies. Texas now can boast that it has 58 corporate headquarters in the Lone Star State compared to 55 in New York and 52 in California. In our column last week, we talked about the fundamental strength of the office markets comparing the rising markets of Dallas and Houston to those of New York and Los Angeles. We discussed the underlying economic stability of the Texas market in Commercial Real Estate. This week, we want to drill down and provide additional data to support our analyses.

Rising Markets

The real estate stock index moved down 2.6% last week underperforming the Russell 2000 (-0.9%), the NASDAQ (-0.8%) and the S&P 500 (-0.7%). The office sector remain relatively stable although there was significant weakness in both the multi-residential and Retail sector (office sector index declined -1.8% but multi-residential and Retail were down -3.6% and -4.0%, respectively). The main reason for the stronger office market performance (relative to Retail or multi-residential sector) is that unemployment has remained relatively stable, but retail and multi-residential declines have contributed to very weak consumer spending. It was a quiet news week for the office REIT’s, so we blame the decline and underperformance versus the broader markets on the legacy link to the financials.

Ditto from the Fed

Last week, I noted the economy “should hit the bottom in late third quarter and start seeing improvement in the fourth quarter of 2008.” I also stated that “we will flirt with recession for the next two quarters,” and we should see positive GDP growth by end of the year (recession technically is defined as a decline in GDP for two consecutive quarters, which we have not had).

Facts Do Matter

After reading hundreds of articles in the past few months on the recent credit crunch and debt market deterioration, it was clear that there were hundreds of different opinions and forecasts. In order to develop a reasoned perspective, I was forced to search for facts because, today, Facts Matter more than ever before.