C&W Sees ‘Moderate Growth Path’ for U.S. Economy

Key economic demand drivers that support property markets–consumer confidence, job growth, low interest rates and consumer spending–remain firmly intact, reported Cushman & Wakefield, New York. 

The firm’s U.S. Macro Forecast said it anticipates a “moderate growth path” for the U.S. economy in the coming months–1.6 percent in 2016 and 2.1 percent in 2017. 

“This represents a sizeable downward revision from the May forecast and largely reflects the downdraft created by the slowing Chinese economy, the aftermath of Brexit and the related fallout in business investment,” C&W Chief Economist Kevin Thorpe said. “Total employment growth is forecast to increase but by a lower amount than estimated in the previous forecast.”

C&W predicted office-using job growth will continue to slow due to the tightening labor market, which should lead to a “gradual” decline in office space demand. Net space absorption for the year should total just more than 60 million square feet compared to 81.1 million square feet last year. 

The office vacancy rate should average 13.2 percent for the year, 60 basis points lower than its 2015 value, the report said. Rent growth should reach 5.5 percent, its highest rate in the cycle. But C&W predicted new office construction to increase over the next two years, which could cause rent growth to decelerate to 4.8 percent in 2017.

“The outlook for the industrial sector remains promising,” the report said. It predicted that warehouse and distribution space will continue to benefit from continued eCommerce growth. “At the same time, flex/research and development space will benefit from solid gains in high-tech employment sectors.” 

Industrial net absorption could surpass 250 million square feet this year, C&W said, exceeding last year’s record-setting 246-million-square-foot figure. This could cause the industrial vacancy rate to tighten to 5.8 percent this year from 6.6 percent in 2015 before rising slightly to 6.0 percent in 2017.

“Commercial real estate markets have fared well: vacancy rates are falling, rent growth is positive and, for some asset classes, reaching a cyclical peak,” Thorpe said. “Leasing velocity remains healthy as well. Impending regulations are expected to put pressure on capital markets activity, but the slowdown in sales volume and pricing is in line with a broader return to a more sustainable investment environment.”