Steady Economic Growth Benefiting CRE

The U.S. economy remains healthy, which should benefit commercial real estate property markets at least for the near future, reported Cushman & Wakefield, New York.

Cushman & Wakefield Chief Economist and Global Head of Research Kevin Thorpe noted most analysts expect the U.S. economic expansion will continue at least through 2019, powered by solid fundamentals and stimulus from the late 2017 income tax cut. “Given the correlation between the economy and the property markets, values will continue to climb in most markets/product types as the expansion continues,” he said in Cushman’s report, Economic Outlook and the Implications for Property Markets.

Worldwide economic growth is a different story. Thorpe said growth is slowing outside of the U.S. “[But] the phrase ‘global slowdown’ is somewhat overdone,” he said. “Global growth peaked in 2017 and is now moderating. Thus far in 2019 most major economies are still growing at a reasonably healthy clip, still creating jobs and still absorbing space.”

The International Monetary Fund predicted global GDP will grow 3.3 percent this year and 3.6 percent next year.

An economic slowdown elsewhere can benefit U.S. real estate markets, the report said. Global inflation remains below 2 percent, which should help keep U.S. interest rates low. And lower oil consumption abroad lowers U.S. energy prices, which can boost the economy.

“Until inflation picks up globally, interest rates in the U.S. will remain low,” Thorpe said, noting the risk of a slowdown in 2020 is overstated. “But keep your eye on the yield curve,” he said.

If the current economic expansion continues through mid-2019 it will become the longest U.S. expansion on record. But years ago former U.S. Council of Economic Advisers Chairman Herbert Stein coined Stein’s Law, which says, “If something cannot go on forever, it will stop.”

Eventually, the U.S. economy will slow and even contract. But Thorpe said the next recession is unlikely to be nearly as severe as the Great Recession was. “So don’t play scared,” he said.