U.S. Macro Forecast, by Cassidy Turley
Cassidy Turley Research’s February “U.S. Macro Forecast: Look Through the Snow at the Fundamentals” describes the impacts of this winter’s weather on the U.S. economy as well as the outlook for the economy and commercial real estate. “The polar vortex, ice and snow storms in the South, colder than usual conditions in the Midwest, and a major drought in parts of California all contributed in skewing a variety of indicators from job growth to home sales to retail sales — and pushed them artificially downwards,” notes report author Kevin Thorpe, Cassidy Turley chief economist. “But we need to take into account the seasonal distortions and not lose sight of the economic trajectory that began taking shape in the second half of 2013. Real GDP grew by 3.7 percent in the last six months of last year, the strongest rate of growth in almost two years. Barring any exogenous shocks, we should see GDP return to that rate of growth once the odd weather cycle subsides.”
“Despite climate vagaries,” the report continues, “the U.S. economy remains on solid footing,” with real economic engines, including the technology, energy, advanced manufacturing and housing sectors forming and maturing. Commercial real estate fundamentals are “still a mixed bag,” with the recovery “best characterized as highly uneven.” The report focuses on some clear winners and losers: “New buildings are outperforming old ones, e-commerce is driving distribution center space, tech-heavy markets are experiencing faster rebounds, and geographic variation in performance is apparent.”
The report offers the following commercial real estate sector highlights:
Office: The office sector is evolving, with Class A office buildings suited for the next working generation — which “places more emphasis on mobility and remote access, collaboration and openness, as well as on energy and efficiency” — in high demand. In 2013, net absorption of Class A space was more than five times greater than net absorption of Class B and C space.
Industrial: “Demand for industrial space continues to soar. … Nearly every major metro in the U.S. reported above average industrial absorption rates in 2013. Data centers and large big-box distribution centers that cater to e-commerce, logistics, and retail continue to be the primary demand drivers for industrial space. With industrial vacancy approaching pre-recession levels, and demand for space still going strong, we expect the next major construction wave to begin in 2014.”
Retail: As the retail sector slowly tightens, “two trends are likely to become more pronounced — the competition of e-commerce sales with retail sales and the bifurcation in the luxury, mid-market and bargain retail sectors. E-commerce sales currently comprise just under six percent of total retail sales. But the aggressive upward growth, which has averaged 12 percent each year since 2001, is expected to continue throughout the next decade.”
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