Cushman & Wakefield’s U.S. Macro ForecastOctober 5, 2017
Trying to save money for your company? If you make intelligent real estate decisions you will save time and money. Our latest macro forecast will give you an edge by shedding light on how things are shaping up for 2017 and into 2018. This article should be helpful as you contemplate some of the strategic decisions that you may face in the next 12-18 months. The full report can be found through the link at the end of the article but my summary can be found here.
For the corporation in a lease, I recommend that you take 15 minutes to put your hands on your lease and review when your lease expires and what you are currently paying in rent. If you find that you are within 18 months of that lease expiration, we need to talk about what to do given the current lease market conditions.
For the investor or owner user contemplating a purchase in the next 12 months, I want to remind you that interest rates are still very low which means that it is still a good time to consider buying a property. If you are looking to purchase a property, I can meet with you to understand your criteria and send you options that fit within your parameters.
Key Forecast Points:
- U.S. Economy maintaining a comfortable, sustainable stride.
- Activity for commercial real estate investments are slightly lower than 2016 levels but fundamentals remain strong.
- Prospects for 2018 look good.
- Most asset classes are performing well.
According to Cushman & Wakefield’s Revathi Greenwood (Head of Americas Research) and Rebecca Rocke (Head of Americas Forecasting), the market is “just about right.” Real GDP is up by more than 2% and Consumer Confidence is at a 15 year high. World nominal GDP growth is expected to be four times greater this year than it was last year. With the global economy showing signs of strength, global trade will remain strong. Basically, the economy looks healthy.
One nuance in the stats are the low inflation numbers. When labor markets are near full employment, core inflation should be higher and it is not as high as economists expect. In addition, the recent effects of Huricane Harvey and Irma will distort monthly numbers making it difficult to get a good read on how the economy is actually doing in Q4-2017. The good news is an uncertain economic read will likely prevent the Fed from increasing interest rates in December.
Prospects for 2018 look good too. Not only is the US economy strong but the global economy is strong. Presently, all three global regions are doing well which should provide an extra jolt to the US economic growth.
For Capital Markets, the activity is off a bit from 2015 & 2016 but pricing continues to hold and investors continue to seek opportunities in primary and secondary markets.
Office related jobs have seen a lot of growth this past year and this growth has translated into steady demand in the office sector. Despite the new construction that is happening in the office segment, with current demand, vacancy only rose 10 bps over last year and we only anticipate that it will rise 10 bsp in 2018. We also anticipate that rental rate increases will slow down in 2018.
On the industrial side, the market is red hot and we don’t anticipate that it will cool off at all in 2018. With a red hot market there is plenty of new construction happening and we believe that new supply in the next 6 months will more than double. Furthermore, vacancy rates for 2018 will rise slightly to 5.6% in 2018 and again to 6.0% in 2019.
Despite strong consumer confidence, the retail sector is seeing some headwind with the changes in consumer buying trends that continue to favor e-commerce. Sales in national chains and department stores have declined since 2011 and they are off by more than $11.4 billion from their mid-2011 peak of $66.5 billion. This is one-fifth decline in total sales activity in five years. Despite the pressures from e-commerce, overall sales are forecasted to grow by 3.8% this year.
To read more on the US Macro Forecast, please click on this link to see the full report.