Trump and Republican-Controlled Congress to Boost the United States Commercial Markets in 2017
2017-01-09
According
to global commercial real estate consultant Cushman & Wakefield's latest
U.S. Macro Forecast; following a turbulent year in 2016, the U.S. economy and
commercial property markets are positioned to perform well in 2017.
"Even
before the election, the U.S. economic fundamentals were showing signs of
heating up," said Kevin Thorpe, Cushman & Wakefield's Global Chief
Economist. "We observed a big GDP number in Q3, accelerating wage growth,
surging consumer confidence - a string of really robust trends were already
forming. Now when you layer in the expected tax cuts and spending
multipliers from the New Administration, it creates an even stronger economic
backdrop for the property markets heading into 2017."
Although
it will take time for policy to form, Cushman & Wakefield expects that
President-elect Trump, alongside a Republican-controlled House and Senate, will
deliver fiscal stimulus measures that will further boost the U.S. economy and
property markets. That said, Thorpe notes that some of the expected growth in
fiscal policy will be negated by tighter monetary policy, higher interest
rates, higher inflation and more global volatility.
On net,
Cushman & Wakefield forecasts the U.S. real GDP will grow by an upwardly
revised 2.3 percent in 2017, and will hit 3.0 percent in 2018. "This will
be enough growth to generate over 3 million net new jobs over the next two
years and an increasingly robust environment for consumers," said Rebecca
Rockey, Cushman & Wakefield Head of Americas Forecasting. "This will
drive more demand for real estate space than was previously assumed."
By and
large, the outlook for the U.S. economy over the next few years remains
positive. "Although headwinds have come and gone and come again, the major
force driving growth - the consumer - is still gaining momentum," Thorpe
concluded. "Of course, we are ushering in a new era of fiscal and monetary
policy, and that will continue to generate uncertainty. However, we believe
there will be a net positive impact on economic growth as well as the property
markets in 2017 and 2018."
The Cushman
& Wakefield Forecast predicts the following implications for each U.S.
commercial real estate sector in 2017:
Office
Market
With
730,000 net new office-using jobs expected by the end of 2016 and an additional
438,000 and 508,000 throughout 2017 and 2018, respectively, there is still
runway for the office market. In 2016, total U.S. net absorption is forecast to
end the year at 50.2 million square feet. Absorption is projected to increase
to 54.9 million square feet in 2017. Vacancy will remain stable through 2017
and will begin rising in 2018.
Industrial
Market
The
upbeat near-term outlook for consumer spending will ultimately trickle into
robust demand for warehouse and distribution space, especially as eCommerce
sales as a share of total retail sales continues to rise. Additionally, with
year-over-year growth in manufacturing production set to rebound to positive
territory, and with auto sales expected to remain in the 17-18 million units
per year range for the next two years, the outlook for the overall industrial
sector remains bright.
Retail
Market
Although
growth in consumer spending will remain strong, a larger share of that spending
is going to eCommerce. Several major retail categories will be in contraction
mode, while other sectors that have been in growth mode will face issues of
market saturation that will slow expansion. Neighborhood/community and power
centers will be least impacted by contraction, while mall and lifestyle centers
- especially Class B and C properties in secondary or tertiary markets - will
be disproportionately affected.
Investment
Sales Volume
Cushman
& Wakefield expects investment sales to decline year-over-year in 2016 by
15 percent, to $466.0 billion. This is still well above the average of $279.7
billion over the 15 years for which there is consistent transaction data. While
investment sales volume is forecast to modestly decline over the next two years
(-2.2 percent in 2017 and -8.0 percent in 2018), the firm still anticipates
solid activity with yearly totals registering $455.7 billion and $422.0
billion, respectively.
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