LS Commercial E-News
March 4, 2008	Volume 1, Number 1
Economic Snapshots: · Unemployment 4.8% (National) · New Jobs for October minus 17,000 · Unemployment 5.1% (KC Metro) · Housing Permits KC Metro area down 20% compared to this time last year Quick Facts – KC Metro Area · Air Freight 21.5 million pounds moved through KCI Airport during January · Housing Permits in January – 380 units · Help Wanted down 10% compared to same time last year · Passenger Traffic moving through KCI January 2007-780,000 people January 2008-800,000 people. Meetings and Presentations – I am happy to speak on the state of the real estate industry and business economics to any group or organization that you may be a part of. All this knowledge free of charge, happy to share my thoughts and insights. If you would like to book a time with me please contact me via e-mail or phone and let me know the date and time of your event. I will make myself available schedule permitting. Snapshot – Manufacturing Sector · Back Log Orders up · New Orders up · Inventories down · Export orders up · Employment down · Production up · Supplier deliveries up · Prices up · Customer inventories down Cost breakdown at the pump for diesel fuel Taxes – 19% Distribution/Marketing – 15% Refining – 14% Crude Oil – 52% DIESEL PRICING U.S. Weekly Average Per Gallon 02-18-08 - $3.396 02-25-08 - $3.552 03-03-08 - $3.658 Wheeler Downtown Airport – KC Number of Flights January 2007 – 7,000 January 2008 – 7,000	This Newsletter is being provided to you free of charge by Paul Licausi, President of LS Commercial Real Estate. If you do not wish to receive this newsletter please hit reply and write “please remove” and I will remove your name from the monthly distribution list. RECESSION OR SLOW PERIOD WHICH SHOULD WE EXPECT The question of the day, recession or slow period. The media has been working overtime on this and there are more opinions out there than I care hear at this point. I think it safe to say the economy is slowing, but are we in a recession, if not, are we heading for one. First of all, to answer the recession question, we are currently not in a recession. Given the fact we have not experienced two consecutive quarters of declining GDP growth (which is the definition of a recession), we are therefore not in a recession so let’s put that opinion to bed right now. Now that we have established that we are not in a recession, the question is are we heading for one. If you listen to the media your simple answer is yes. However, we should not jump to that conclusion. The economy is not as weak as you might think. Yes, we have seen some signs of cracking in the economic armor, new jobs numbers have been less than exciting, manufacturing has been holding on by its fingernails and GDP continues to trend down. Not a pretty picture, but it here are some things to think about. Unemployment remains historically low and still holding under 5%, exports are still very strong and consumers continue spending money. These are not ingredients for disaster, there are some highlights that show signs that the economy is not heading into the tank. Reviewing the economic data that has come out over the last 60 days, here is a quick summary of where I see the economy heading. Recent forecast information on GDP is for 1^st and 2^nd quarter to be slower than we have been used to. The range will be from 1.5% to 2%, new job growth will be lackluster through mid to late summer expect to see 20,000 or less new job growth reported during this period. Manufacturing will continue to struggle through the state of 3^rd quarter, look for index readings ranging from 45 to 55 it is just going to seesaw each month. The consumer should remain somewhat timid but overall consumer spending will be there and will be the underlying factor that will ultimately support the economy through this slow patch. Keep you head up through this slower period, detailed data I have seen over the last month is pointing to a stronger last half of the year. We should start to see some momentum picking up in economic conditions as we enter late summer. I do think we will see a rebound in the last half of this year. Keep in mind, we are in an election cycle and typically the politicians do not want any to see bad economic times as an election nears. One wild card here is the stimulus package that has passed congress and is now reality. This is will be rebate checks from the government that will go directly to the consumer. Will this be enough to jump start the economic and get the fire burning again. Historically, the answer is yes. The government has instituted a rebate three times in the past (1975, 2001 & 2003) and in all three instances their actions did have a positive economic impact. The question is what the consumer will do with the rebate check. The government wants the consumer to spend it and circulate that money back into the economy. The question is will the consumer spend their rebate check or put it in the bank and save it. The consensus is that roughly 40% of the consumers will spend the entire rebate check with the remaining 60% spending some of the rebate check and rat holing the balance of the rebate. Will this be enough to get the desired effect for the government sending out a rebate, I think it should, and my guess is that the 40% estimate could be low. Let’s face it, the American people love to spend money and my guess is they will stay true to form on this one. Fed Watch The Federal Reserve has a lot of their plate at the monument. Worries regarding recession, inflation, stagflation and a dollar that has been on a diet and continues to loose strength. What will the Fed do next; you cannot say they have not been aggressive. Significant interest rate cuts since the first of the year, making historically large amounts of money available within the financial sector and a continued commitment to move quickly to stimulate the economy. All positives for us and this should be comforting to all of you business owners. Now what is ahead for the Fed. Next up is a federal open markets committee meeting in March. These meetings are when the Fed sets monetary policy and determines interest rates. I have been keeping a close eye on developments and commentary leading up to this meeting. At this point, it appears that the Fed is likely to reduce interest rates by another .25% to .50%. I normally have a feel for what percentage the Fed is likely to cut but in this case I have no idea. I am just looking for a cut either way. On an on-going basis Fed action over the next few months will be influenced by the GDP numbers, new job numbers, manufacturing outlook and consumer spending. Do not worry that the Fed will be sitting on the sidelines during this period, they will be active in the game and we can all feel assured that they will move quickly to address areas of weakness as needed. Industry Alert Corner Industry in the spot light this month: Agricultural Products I have highlighted this industry in the past but thought I would revisit this sector again. As you know, the price of agricultural products has been trending upward for some time now. Corn, wheat, soybeans as well as many other agricultural products are seeing record pricing and the trend does not seem to have an end in sight. For a long period of time agricultural pricing was flat to down and the farming community had a tuff go of it. With pricing at the high end of the scale, companies in the agricultural sector are experiencing record earnings and this is likely to continue. There are many factors that are contributing to this resurgence within the agricultural sector; increased demand and alternative energy production are just a couple of factors that have pushed up demand as well as pricing. I noticed that exports of agricultural products have been increasing steadily over the last couple of years. Worldwide demand for U.S. agricultural products is significant and should continue to increase. With all of this good news, there are a lot of service opportunities within this sector and many right here in the KC metro area. Some of the more notable names within this sector that have a significant presence in KC include; ADM Milling, Bayer, ConAgra Foods, CNH (Case New Holland) just to name a few. These and other companies in this industry are doing well and will continue to expand as the agricultural industry continues to stay strong. Look into this sector; find out what companies are opportunities for you to provide your service. As always in this section of the newsletter I identify an industry or sector that is doing well and where I think there are great service opportunities. Get with it now, don’t wait for your competition to take the first step here. Manufacturing Sector The manufacturing sector showed new signs of life during the month. The index reading for January was 50.7 which was just above the neutral mark of 50. Any index reading below 50 indicates the sector contracted. The sector rebounded from a negative reading in December. Now, this is good news, the sector certainly came back to life after a lackluster December. The manufacturers returned to the business of producing products. While they continued to ramp down inventories, they stepped up production during January. This is a very good sign, if the manufacturers are ramping up production that is an indication of confidence so this is certainly a positive sign of things to come over the next couple of months. The overall report reflected a much better outlook than last month. Most of the key indicators were improved; New orders, Production, Supplier Deliveries, Backlog of Orders, Exports and Imports all showed signs of improvement. As I have mentioned, I always watch very closely New Orders and Backlog of Orders as a gage of the health of the sector. If these two key indicators are positive then the overall outlook will be positive. This is a clear indication of what we can expect over the next couple of months. If New Orders and Backlog of Orders are positive, then we can expect for the manufacturers to respond by ramping up production, inventory and employment. This is what we need the sector to do, get active which then ripples through the overall economy. Remember what I mentioned in the Economy Section of this newsletter, things are not as bad as we are being led to believe. This report supports the belief that the second half of the year should be much better. Now with a good positive report under our belt, don’t get too comfortable yet. I do believe as I had predicated last month, we will see the index readings range from between 46 to 55 over the next several months. There is a chance that the sector could contract again with an index reading below 50 but I do not think we will see a negative reading more than once or twice over the next several months. I do expect more of the same low 50’s reading over the next several months. The manufacturing sector is resilient and I do expect for them to continue to keep up the good work here and keep pushing things along. ENERGY SECTOR SPOTLIGH I heard a prediction that we will see $4+ per gallon gasoline prices sometime this year. First I thought this is impossible, but it could theoretically happen. If it did I think it would be disastrous for the economy and would be impossible to sustain but nonetheless could happen. I am still going to hold to my original thinking, gasoline pricing at these levels is unsustainable. The more I tell people that the more I am hearing I better get use to pricing at these levels because it is here to stay. As I said in the past, there is only so much the consumer can spend or more importantly will spend for a gallon of gas. I think the oil companies are there already and pushing pricing up even higher will just eroding demand. I have started to see some shift in the thought process of the consumer regarding what vehicles they are buying. The smaller size vehicles are getting most of the action with the larger class SUV’s loosing footing. This trend will continue, the consumer will continue to look for better gas mileage options and take a pass on the large class vehicles. Am I right or all wet on this, only time will tell but the trends are in my favor at this point. I do believe that at some point this year demand will start soften and we will see the oil companies start to ramp down pricing.
	KC INDUSTRIAL REAL ESTATE UPDATE As we move into mid 2^nd quarter the industrial real estate market continues to remain solid. Despite what you hear in the news everyday about how bad the economy is, locally our industry base is moving along. There are a significant number of companies in the market looking for space and I do not forecast that this will change any time soon. The industrial real estate inventory for available properties remains at a low level. New construction is occurring but at a measured pace. Credit the local developers for not ramping up and getting out of control with new construction over the last two years and flooding the market with new buildings. We have a good balance right now between available properties and tenant demand for space. I do see lease rates remaining relatively flat to slightly up over the first half of the year. Lease incentives will be modest, expect no more than 1-3 months of free rent and that will be dependent on the length of the lease term. If you are looking for a generous build out allowance you will probably not see many Landlords interested in your business. The trend towards a lower build out allowance will continue. A continued trend where both the Landlord and Tenant are contributing capital dollars towards tenant improvements will be more of the norm. The market right now if fairly balanced, there is really no leaning favoring either the Landlord or the Tenant. We should see a stable industrial real estate market throughout the KC metro area for most of the year. Stable lease rates and vacancy levels remaining about where they are averaging right now. If you are interested in buying a building, average sale prices will remain at the high end of the trend line. The only difference is that interest rates will continue to decline which will decrease your cost of owners from a capital standpoint. The lower cost of money will certainly bring out more buyers which will keep pricing on the high side of the scale. COMPANIES MOVING IN THE MARKET VARIFORM 65,000 SF KC, MO HONEYWELL 32,688 SF INDEPENDENCE, MO VISTAR 26,649 SF LENEXA, KS MILLER COOPER 14,700 SF MERRIAM, KS Here’s to a successful 2008!! Have a safe and happy New Year!! If you are interested in buying, selling a building or need to lease space call me and I will provide detailed market information to you and assist you in completing the transaction. Also, if you are interested in selling your building now is a good time and I can assist you in establishing market value for your building and selling your building for you. Thank you for your time and I hope this information has been helpful.