When we read or hear about economic recovery, whether it is regarding commercial real estate or a different sector of the economy, so often the perspectives and projections we hear are on a national, or even global, scale.
Unfortunately, such analyses can result in a picture of the economy that seems like it was taken with a wide-angle lens. Typically, commercial real estate activity in larger cities will not be representative of tertiary markets like Springfield, Ill. The big picture can give a distorted view of the health of our local economy here in Springfield.
Dr. Peter Linneman, chief economist for NAI Global, says that employment levels in America have recovered to nearly pre-recession levels and that many of the jobs created during the recovery have been semi-skilled jobs, rather than minimum-wage jobs.
The jobs recovery is especially meaningful for the housing industry, and multifamily in particular. New home construction is expected to be on a gradual rise in Springfield during the next two to three years. Most everyone knows that small business is the main staple for job creation, yet government handouts and subsidies are funneled to the largest banks in America, and there the money sits instead of being loaned to small businesses for growth and expansion.
Healthcare Leads the Way
Fortunately, Springfield has a vibrant medical industry that has served as an economic catalyst. New construction, acquisitions and renovations have been occurring while most other business sectors have struggled to survive, or at the minimum, maintain their viability. Thank you Memorial Medical Center, St. John’s Hospital, and Springfield Clinic.
Another bright spot in Springfield’s commercial real estate market is the absorption of office buildings that have been on the market for more than three years, many of which were bank-owned properties.
The buyers of these assets will — as has been my observation over the past 38 years and three recessions — be perceived as wise and prudent investors. With the absorption of these assets, the value of office properties will rise due to an increase in rent or scarcity of office space, which will once again precipitate new construction.
Springfield has always experienced a shortage of warehouse and industrial space, which has resulted in numerous lost opportunities to attract distribution and small manufacturing businesses to our community. There will be future opportunities for these types of businesses to locate in Springfield, if we are prepared.
Retail has had a decent run and will continue to chug along. I don’t believe that there is enough discretionary income in our local economy to fuel strong retail sales.
For retail sales to be vibrant in Springfield, it is necessary to draw from other markets. Since sales tax, which generates money for roads and other infrastructure, is the lifeblood of most communities, continued incentives for new retail businesses and existing retail expansion are critical.
Finally, what about interest rates? This may come as a surprise, but my opinion is that if interest rates increase to 6 or 7 percent, this will have a positive effect on our local economy as well as the national economy.
Legislators Need to Step Up
Overall, Springfield is doing okay and has the potential to do quite well if our state government will do more than acknowledge monetary problems and be willing to implement solutions that will cause some short-term pain in return for long-term gain.
If our state government will not address the obvious problems, then both large and small businesses will relocate to other states at a greater rate than is currently occurring. Springfield and the surrounding markets have provided our team at NAI True with opportunities for satisfying commercial real estate careers.
The reason these opportunities have come to fruition is because of the quality of people we have had the privilege to work for and with.
— By Sam Nichols, managing broker, NAI True Commercial Real Estate Services Worldwide. This article originally appeared in the July 2014 issue of Heartland Real Estate Business magazine.