Lackluster commercial real estate sales and lease transactions during the past six months depressed the overall activity in Maine’s real estate market, though residential activity and construction employment nudged up, a real estate group said.
The Maine Real Estate & Development Association on Tuesday announced first quarter numbers for its Mereda Index, which tracks changes in nine seasonally adjusted aspects of the state’s commercial and residential markets. The group held its spring conference in Portland.
The index, which has a base number of 100, was at 100.1 for the first three months of 2019 compared with 100.4 in the first quarter of 2018.
It declined by 2 percent over the past six months and was down 3.4 percent over the past year, both attributable to lackluster commercial real estate activity.
While the commercial market recovered to pre-recession levels in 2013, it peaked in the second quarter of 2016. Since then, the volume of transactions and building square feet leased and sold has declined.
The slide deepened in the past six months, with the number of sales and lease transactions falling 13 percent and the square foot totals sold and leased declining 41 percent.
The price per square foot also fell nearly 10 percent during the past six months.
By comparison, residential activity rose 4.6 percent over the past year. However, the story is mixed. Existing unit sales dipped 4.3 percent in the past six months, but other measures in the index rose, including 6.5 percent growth in residential permits for single and multifamily residences in the past six months.
“We are continuing to see robust sales activity in Maine’s residential market,” Elise Kiely, senior vice president at Sotheby’s International Realty, said in a video statement at the conference. “2019 has started off with relatively low inventory and strong demand across most price points.”
She said one key driver of residential demand is the hiring activities at Maine companies, including WEX, Covetrus, Idexx, Tilson, Tyler Technologies and Maine Medical Center.
“Maine has a strong lifestyle brand and reputation appealing to a wide variety of different demographic groups,” she said. “The biggest challenge going forward is affordability, both with new construction development and workforce housing.”
Construction employment was up 3.8 percent during the past six months, but was flat over the past year.
However, the construction market is challenged by a skilled labor shortage and world economic uncertainty.
Contractors and subcontractors are very busy, meaning fewer bidders per project. That translates into higher pricing, said Richard Brescia, vice president at Cianbro.
That company is dealing with the market conditions by focusing on lean construction principles and collaborative construction management.
“The building market was extremely active [in late 2018 and early 2019], especially in the corporate office; senior living and institutional markets, including health care; higher education; government; and the life sciences,” he said.
Brescia said he expects those markets will continue their momentum in the coming months and even years. However, rising costs, especially for labor and materials, could curtail private development.
Maine also is struggling with a housing affordability problem, with nearly 30 percent of the 41,839 renter households in the state making $24,600 or less.
“We need 20,000 more affordable rental homes in the state,” said Dan Brennan, director of the Maine State Housing Authority, which administers low-income housing and weatherization programs.
He said there are shortages of affordable housing in all 16 Maine counties. MaineHousing expects to create 300 to 350 new affordable housing units this year.
“But we need to create 1,000 units per year,” he said.