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Chris On June - 15 - 2012

“What are you seeing in the market?” is the question that I hear the most from my clients.   An excellent midyear status check up can be found in our U.S. Macro Update which was just released by Cassidy Turley’s Chief Economist, Kevin Thorpe.  

After I read this report the section that I feel best summarizes what we are seeing in the trenches can be found in the second paragraph, “The U.S. recovery is wobbling, but the economy is still expanding.” There are a lot of unknowns out there but this statement really sums up the report. In my opinion, the other noteworthy points within the report were:

  • European debt is still causing concern in the overall global economy.
  • The European debt crisis is not going to just go away.
  • Moody’s predicts that the latest odds of a recession occurring in the U.S. in the near term are slightly higher than 1 in 4 which is an improvement over the near 50% rating from September 2011.
  • If the euro-crisis morphs into a severe recession, the recovery in the U.S. may end and a new rescission could begin.
  • The U.S. economy is somewhat insulated from the euro-crisis and is healthy enough to survive a mild European recession.
  • There are more signs in the economy that point to growth than contraction.
  • The decline in oil prices is one of the positives and can represent increased consumer spending which is followed by job creation.
  • The total supply of money circulating in the U.S. economy is also on the rise from overseas investors.
  • The 10 year treasury was at a record low of 1.45% on June 1, 2012. This is believed to eventually put downward pressure on rates like mortgages and credit cards which should bolster consumer spending.

 While 2012 started strong, we have seen a quick retreat in the past couple months. The hope is always to see an increase from year-to-year.  While most predictions for 2012 seem to be mild, if we see a similar year to 2011, we will see the U.S. economy grow by 1.7% and vacancy drop by 60 bps. For 2012, “the consensus is calling for GDP growth between 2% and 3%.”  The final comment from Kevin was “the odds still point to continued progress.”

 A quick Tenant Intelligence take on the report:

  • It is still a tenant’s market. 
  • Rental rates saw a recent jump in Class A office but we believe those higher rates are soft giving an opening for stable tenants to push rates down.
  • While the market continues to improve, the rates today will likely be lower than the rates a year from now. Tenants should try to renew early if possible.
  • The second half of 2012 will be a better time to strike a lease deal than the first half.
  • Sales prices are still low. If you need or want to buy, start with a lower offer to test the seller.
  • For buyers and sellers, appraisals are more critical than ever. If your agreed sales price is on the high side, you may see some push back from the lender when the appraisal comes in. Sellers should be prepared for a second negotiation on the sales price.

For more on this article, please read U.S. Macro Update: It’s the Euro (not the U.S.) Crisis, Stupid – June 2012. Please feel free to comment and give us your take on the economy and where you think things are headed for the second half of 2012.

2 Responses

  1. John Haffner says:

    Hi Chris,

    Thanks for posting your thoughts on the macro trends. It’s refreshing to see someone trying to pull out the bigger picture in the middle of the “sky is falling” daily economic news. “Wobbly but expanding” fits with our experience, too.

    Best,
    John

  2. Chris says:

    Thanks for your comment John. Let’s keep our heads down and hope we keep seeing good news from EU. All of the local good news/bad news seems to follow what is happening on a world-wide basis. Cheers.