Just a year ago Lehman Brothers collapsed, the global financial system was buckling and there was talk of another Great Depression.
But as we head into the fall, a tentative recovery appears to be taking hold across the country. And, in a change from past downturns, there are growing signs the Bay State may be a leader, instead of a laggard, when it comes to the rebound.
In fact, we may very well be one of the first states to put the Great Recession in our rearview mirror.
The latest encouraging sign: Hotels in Boston and Cambridge are starting to see rooms fill up again after 13 straight months of rising vacancy rates, Patrick Moscaritolo, president of the Greater Boston Convention and Visitors Bureau, tells me.
It’s a key measure in our local economy, which is heavily dependent on tourism and business travel. And it was accompanied, in turn, by an uptick in the number of visitors to sporting events, museums and other cultural attractions and events across the Boston area as well over the summer, he notes.
However, these are just the latest in a growing series of economic indicators that suggest the worst may be over for the Bay State’s battered economy.
Expansion Vs. Contraction
“I definitely see a turnaround in our consumer confidence,” Moscaritolo said of the numbers.
Business confidence is up and edging closer to a level where businesses will start looking at expansion instead of contraction. Meanwhile, the Boston area is shaping up to be one of the stronger home sales markets in the country as the nation finally starts to dig out of one of the worst housing slumps since the 1930s.
Still, the road back looks a little longer for Bay State’s commercial real estate industry, a latecomer to the downturn. But as job losses taper off and companies begin to look at expanding again, this beleaguered sector will stabilize as well.
As the economy goes, so goes the commercial real estate market.
In contrast to the rest of the country, Massachusetts is likely to see job losses taper off well before unemployment reaches 10 percent, notes Alan Clayton-Matthews, a regional economy expert and professor at Northeastern University.
In fact, he suggests the state’s economy could end up growing about a percentage point during the second half of the year.
“That is positive growth that would be consistent with the recession being over,” the economist said.
The latest key indicator to point up again – instead of down – is the local hotel market.
Occupancy rates in Boston and Cambridge hotels rose 2 percent this July over July 2008, pushing the total percentage of rooms filled each night past the 85 percent mark, Moscaritolo reports.
He’s expecting to see another 2 percent increase for August when those numbers are finalized.
That breaks a long losing streak that began in May 2008 as the economy slowed and accelerated after last fall’s near meltdown of the global financial system.
The uptick in business also comes as local hotel managers roll out the red carpet to woo tourists and vacationers.
The Copley Square Hotel celebrated its 118th birthday over the summer with an online sale that included a package of five rooms for $18 each.
And the renamed Back Bay Hotel has offered packages that include three nights for the price of two, and passes to various local attractions – from a tour of Fenway Park to the New England Aquarium.
Out And About
Along with brisker business at local hotels, the summer also saw an increase in the number of visitors to museums, sporting events and other cultural institutions across the state.
In addition, the last few months have also seen several large medical conventions descend on Boston, booking hotel rooms and renting meeting space at the Hynes Convention Center in the Back Bay and the Boston Convention and Exhibition Center on South Boston’s waterfront, Moscaritolo notes.
The increase in business couldn’t come at a better time, with two major new downtown hotels – the W Hotel and the Ames – slated to open over the next few months.
Hotel rates have yet to see an uptick, though, with the $189-a-night average stuck back at 2004 levels.
“There has been a significant amount of discounting in the marketplace,” Moscaritolo said.
Business confidence is also the rise as well once again.
Confidence in the state’s economy among local business leaders rose a half point in August, to 40.6, according to an index put out by the Associated Industries of Massachusetts
That’s up 7.3 points from its all-time low in February.
“This is the fifth gain in six months, reflecting slow but fairly steady improvement in employers’ assessment of the overall economic climate,” said Raymond G. Torto, global chief economist at CB Richard Ellis Group Inc., and chairman of AIM’s Board of Economic Advisors, in a statement.
Still, it’s not quite yet at the levels needed for expansion and hiring, which generally happens after the index passes 50.
But that could happen early next year or even later this year, notes Clayton-Matthews, the regional economic expert.
If so, that would be great news for the Bay State’s battered commercial real estate sector.
Vacancy rates are approaching the 20 percent mark in the suburbs, according to a recent survey by CresaPartners. Downtown, the market is still reeling from the foreclosure of the John Hancock tower, with the possibility of more overleveraged towers meeting the same fate.
Yet the fate of the commercial real estate market is closely bound up with that of the economy as a whole.
As job losses level off and hiring starts again, that should start to stabilize office vacancy rates.
‘Industry Mix’ Dampens Jobless Numbers
In another piece of good news for the office market, Clayton-Matthews believes the state’s unemployment rate will also remain below the national average.
Construction and autos, big industries in other parts of the country, have been hammered in this downturn.
By contrast, the tech sector and health care, two major local mainstays, have performed fairly well.
“I think we are doing better than the country as a whole, largely because of our industry mix,” Clayton-Matthews said.
Still, possibly the most heartening of recent positive economic developments has been the budding rebound in the battered home sales market.
While we’ve had our share of real estate distress, the Boston area did not see the overbuilding and overwhelming flood of foreclosures that have hammered once hot boomtowns like Miami, Phoenix and Las Vegas.
Now the Hub appears to be leading the way out the housing downturn.
The widely watched Case-Shiller home price index shows several months of rising prices in the Boston market, with Robert Shiller, in a recent interview, speculating on the possibility of a new housing bubble emerging here.
“We have seen increases in sales and of prices,” Clayton-Matthews said. “Both are indicators that the housing market has hit bottom and has started to come back.”
We’ll just have to wait and see, but it is a world away from the dark days of September 2008.
