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Cushman & Wakefield: Property Markets Turn a Corner
New York City — May 5, 2016 — Global commercial real estate services firm Cushman & Wakefield released its latest U.S. Macro Forecast, anticipating a moderate growth path for the economy and a continued strengthening of real estate fundamentals.
Following the early year financial market volatility, the global debt and equity markets have rebounded. “The U.S. economy and property markets are starting to fire up again as fears of a stalled expansion diminish,” said Kevin Thorpe, Cushman & Wakefield Global chief economist. “It is important to note that, through the heightened uncertainty, U.S. job growth continued to boom, providing a consistent reminder that the core drivers of the domestic economy remained healthy.”
Cushman & Wakefield’s forecast reflects a moderate growth path for the U.S. economy, 2.3 percent in 2016 and 2.7 percent in 2017. Final first quarter GDP growth numbers will likely be anemic, according to Thorpe. However, the firm’s current estimate of 1 percent growth is expected to accelerate to average 3.7 percent during the second and third quarters. Business investment should accelerate through 2016 and peak in the second half of 2017. Net exports will remain the most significant drag on GDP growth, as the trade deficit widens due to weakening global demand for U.S.-manufactured products and the appreciation of the U.S. dollar.
The Cushman & Wakefield Forecast predicts the following implications for the commercial real estate sector:
• Office: Due to the anticipated contraction in hiring – a function of a tightening labor market, not a slowdown in growth — aggregate demand for office space will also slow. Cushman & Wakefield forecasts U.S. net absorption to decrease from 82.0 million square feet in 2015 (a cyclical peak) to 67.8 million square feet in 2017. With conditions tightening, U.S. office rent growth will continue as well. In 2018, new development should finally catch up with decelerating demand growth.
• Industrial: A more confident consumer and the positive outlook for the U.S. labor market will continue to drive robust absorption, which reached record-setting highs in 2014 and 2015. Manufacturing space will face headwinds and tailwinds, the former arising from declines in manufacturing activity mainly due to slowing exports. Overall vacancy will tighten to 5.9 percent in 2016 — on par with the tightest conditions ever observed in the sector. An uptick in construction activity in 2017 will help to alleviate some of the space shortages.
• Retail: Demand will largely remain focused on Class A and new product. Over the next two years, a combined 80 million square feet of net absorption will result in vacancies declining from 8.1 percent in 2015 to 7.5 percent in 2017. Rent growth will remain bifurcated, and a stronger-than-anticipated closure season has dampened the rent outlook. However, positive consumer spending trends will fuel retail fundamentals, especially as low gas prices and further wage gains support stronger growth.
• Transaction volume: Capital markets activity is expected to accelerate in 2016, growing 6.9 percent from 2015 to a record level of $580.4 billion. Continued easing in monetary policy outside the U.S., flight to quality amid global financial market volatility and growing levels of dry powder will be among the major near-term drivers of U.S. commercial real estate investment demand. Investor interest in “urban opportunities” that capitalize on the changing demographic and economic landscape remains high.
“Property markets, which responded to the year-end 2015 and early 2016 weakness, are turning a corner,” said Rebecca Rockey, Cushman & Wakefield head of Americas Forecasting. “Across market sectors, leasing and sales activity is firming up during the second quarter. Demand will remain strong, vacancy will tighten and rental growth will continue this year — albeit unevenly for some asset classes. These conditions will also support stronger activity in the capital markets for the remainder of the year.”
Cushman & Wakefield is among the largest commercial real estate services firms with revenue of $5 billion across core services of agency leasing, asset services, capital markets, facility services (C&W Services), global occupier services, investment & asset management (DTZ Investors), project & development services, tenant representation, and valuation & advisory. For more information, visit www.cushmanwakefield.com.