The “first-quarter blues” are over for the U.S. economy, which bodes well for commercial real estate during the reminder of 2015, according to real estate services firm DTZ.
The report, titled U.S. Macro Forecast June 2015, written by the company’s chief economist Kevin Thorpe and economist Rebecca Rockey, suggests the disappointing GDP figure recorded during the first quarter (GDP contracted 0.7 percent on an annualized basis) has been a recurring issue in recent years.
“This has been such a pronounced post-recession trend — weak first-quarter figures followed by solid growth in the remaining three quarters — that the U.S. Department of Commerce is actually revisiting how it calculates seasonal factors, which may be missing important features of the economy’s performance during the winter months,” according to the report.
One reason for DTZ’s optimism is that low oil and gas prices haven’t yet stimulated increased consumer spending up to this point — a trend the report says “will soon change.” Additionally, U.S. consumers have been very conservative, increasing the personal savings rate from 4.6 percent to 5 percent from November 2014 to April 2015.
“In other words, consumers are choosing to hold on to any extra savings from the gas pump rather than spend them, but this behavior will prove temporary,” according to the report. “It is important to note that if there was a looming economic slowdown, consumers would typically react by cutting down on unnecessary items. That is not happening.”
Restaurant and hotel consumption grew at a 5.3 percent annualized rate in the first quarter, and there was a 20 percent year-over-year increase in foreign travel spending from first quarter 2014 to first quarter 2015.
“These are clear, telltale signs indicating that the consumer is feeling just fine and that the weakness in other spending data was mostly weather-related,” according to the report. “With the weather warming up and with extra spending money in the pockets of all automobile drivers, consumer spending will rebound materially, as will economic growth.”
All of these factors point to job growth and extremely high demand in the commercial real estate industry. In multifamily, nearly half of major metros enjoy a vacancy rate below 5 percent, and many markets are even below 3 percent.
The industrial sector, meanwhile, saw its strongest year on record in 2014, a trend the report suggests is on pace to continue. Nationwide in the first quarter of 2015, the sector saw 38.8 million square feet of absorption with a cyclical-low vacancy rate of 7.6 percent. Rents, meanwhile, are “aggressively pushing upwards.”
The office sector is also poised for more growth. Despite a 37 percent increase in net absorption nationally in 2014, the report predicts a further 10 percent acceleration in 2015.
Retail is the only sector the report gives mixed reviews, noting that “no one trend can correctly characterize all of the different types of space.” It did note that high-end, Class A space is performing well with vacancy under 5 percent “in nearly every primary and secondary market.” Over 75 percent of retail vacancies are in Class B and Class C segments — mostly Class C.
Click here to read the full report.
— Jeff Shaw