Cushman & Wakefield’s U.S. Macro Forecast Examines Factors Driving Healthy CRE
NEW YORK – The U.S. economy has entered a Goldilocks scenario, one that is not too hot or too cold, but “just about right,” Cushman & Wakefield’s U.S. Macro Forecast reveals.
Real GDP is on track to grow slightly over 2% in 2017, generating nearly 2 million net new jobs this year. The economy’s temperature also seems to be “just about right” for consumers. Confidence is hovering at a near-15-year high, retail sales are accelerating at a 5% rate year-over-year and credit is flowing. In addition, the global economy is also resurgent. World nominal GDP growth is expected to be four times greater this year than it was last year, bolstering global trade and business confidence.
But by many metrics, the economy is certainly not “too hot.” Inflation is one such measure. Despite a low unemployment rate, wage growth remains mostly muted and core inflation remains stubbornly below the Federal Reserve’s target rate of 2%. History suggests that when the labor market is near full employment, core inflation should be higher; however, in August, the Fed’s preferred measure of inflation—the core Personal Core Expenditures (PCE) index —was up only 1.4% year-over-year.
“While this may be related to transitory factors, such as pass-through effects from lower oil prices, a one-off decline in medical costs and cell phone prices, the reality is that inflation, or lack thereof, has been baffling economists for years, “ said Revathi Greenwood, Cushman & Wakefield Americas Head of Research. “Complicating matters further are Hurricanes Harvey and Irma, which will distort monthly data and make it very difficult for the Fed to get a clean read on economic performance.”
Added Rebecca Rockey, Head of Americas Forecasting, “The next interest rate hike, which was previously expected in December, now looks less likely. Prospects for 2018 look good. Downside risks lie mostly on the policy side, but assuming there is a bit of fiscal stimulus, real GDP will finally flirt with that 3% threshold next year, at least on a quarterly basis. There is a decent chance that the current economic expansion will be longest in the post WWII era.”
Property market fundamentals are performing well, aside from retail, which continues to face headwinds from eCommerce. Demand metrics such as net absorption are on par with, if not slightly off, last year’s levels. Construction will soon start to drive vacancy rates upward, but any increase will be gradual. Leasing markets will be carried by the broad and steady health of the labor markets and consumers. The wave of new supply that hits in 2017 and 2018 will put a cap on rent growth, and a shift towards a more occupier friendly market should be expected in most U.S. cities next year.
The capital markets are a bit slower in terms of sales volume, but pricing continues to hold, and investors continue to seek opportunities in primary and secondary cities. However, the tenuous interest rate outlook adds to the uncertainty in capital markets. Even so, supportive global monetary policy and relatively low interest rates are expected to drive sufficient capital into CRE over the coming years.
About Cushman & Wakefield
Cushman & Wakefield is a leading global real estate services firm that helps clients transform the way people work, shop, and live. Our 45,000 employees in more than 70 countries help occupiers and investors optimize the value of their real estate by combining our global perspective and deep local knowledge with an impressive platform of real estate solutions. Cushman & Wakefield is among the largest commercial real estate services firms with revenue of $6 billion across core services of agency leasing, asset services, capital markets, facility services (C&W Services), global occupier services, investment & asset management (DTZ Investors), project & development services, tenant representation, and valuation & advisory. 2017 marks the 100-year anniversary of the Cushman & Wakefield brand. 100 years of taking our clients’ ideas and putting them into action. To learn more, visit www.cushwakecentennial.com, www.cushmanwakefield.com or follow @CushWake on Twitter.