Despite headwinds coming from the
uncertainty generated by events including Brexit and the presidential election,
the U.S. economy should continue to
chug along with moderate growth, supporting healthy fundamentals in the
commercial real estate market.
The U.S. economy has frustrated the
market for years because of its inconsistent growth pattern and failure to
break out from its middling path. That
said, the U.S. has added 14. 8 million
private sector jobs during a record 76
straight months of positive growth that
started in February 2008. As of this
past June, the national unemployment
rate was 4. 9 percent and the underemployment rate was 9. 6 percent, the
lowest it has been since the recession
ended. Job growth will likely drop from
the 200,000-per-month level of the last
seven years as the labor force reaches
full employment levels, but that change
will boost wage growth which, while
modest, has been on an upward trend.
Other positive indicators that point
to sustained growth: consumer spending is rising moderately without an increase in household debt levels, a sign
that purchases are sustainable and
not fueled by credit; auto sales remain
strong at a rate of 17+ million per year;
and oil prices have stabilized in the
mid- to upper-$40 per barrel range,
which supports increased household income.
There are enough headwinds to
create the kind of volatility that fuels
worries. Slowing technology company
growth raises concerns about the de-
mand in tech-centric metropolitan ar-
eas such as Denver, Austin, Texas and
California’s Silicon Valley. Low commodity prices slow glob-
al growth and reduce capital inflows from commodity-rich
nations. Markets dependent on mining, especially Houston,
are struggling somewhat. Tough new bank regulations have
put a crimp in trading activities and profits at financial insti-
On top of these developments, tepid growth in Europe and
Asia has worried global markets, even before the Brexit vote.
Brexit, however, is unlikely to have a major impact on the
U.S. economy or commercial real estate. The U.K. is relative-
ly small and less than 4 percent of U.S. goods end up there,
so reduced demand from Britain should have little tangible
effect on U.S. gross domestic product. However, anything
that upsets global financial markets could have repercussions.
Britain’s exit negotiations will usher in a period of uncertain-
ty, which could lead corporations to halt growth plans and
subsequently increase the volatility of capital markets.
Brexit could produce positive outcomes for U. S. real estate,
though. Uncertainty overseas is likely to increase demand for
U.S. Treasury bonds, slow the Federal Reserve’s plans to increase rates and prompt global investors to put even more
capital in safe asset classes such as multifamily.
The bottom line is, the conditions that have spawned long-term positive real estate performance – including strong
employment conditions, restrained development in most
markets, demographics of the millenial generation reaching
renter age, social trends that have led to the revitalization of
urban areas across the country and a large inflow of capital
– are likely to continue at least through 2017. Certainly there
are dangers posed by the potential of terrorism or a global economic slowdown, but we expect that demand for U.S.
commercial real estate will remain stable.
THE U.S. ECONOMY SHOULD
CONTINUE TO CHUG ALONG WITH
MODERATE GROWTH, SUPPORTING
HEALTHY FUNDAMENTALS IN
THE COMMERCIAL REAL ESTATE