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DTZ: U.S. Macro Forecast Sees Plenty of Runway for Commercial Real Estate
Washington, D.C. — June 12, 2015 — DTZ, a global leader in commercial real estate services, announced the release of its U.S. Macro Forecast, which predicts positive economic results for the second half of 2015 after a shaky start.
A weakened global economy, a plunge in energy investment, a soaring U.S. dollar, and another difficult winter in many U.S. regions took their toll on growth, but real gross domestic product (GDP) still managed to grow 2.7 percent year-over-year as of the first quarter, a rate that is high enough to sustain commercial real estate demand drivers.
Also, job growth is at its highest point in 15 years, and 30 percent of the new jobs created to date in 2015 were in office-using sectors, with the bulk in professional and technical services. Though the current growth cycle has its inconsistencies, it could surpass the 10-year cycle that spanned 1990 to 2000, which marks the longest expansion post World War II.
“It is always difficult to predict with any precision when an expansion will come to an end, but the latest data on confidence, jobs, debt ratios, and capital flows shows there is little evidence to suggest the U.S. expansion can’t on go for a lot longer,” said Kevin Thorpe, DTZ chief economist, Americas. “From a commercial real estate perspective, the odds are heavily in favor that expansion has a lot of runway left.”
For the U.S. commercial real estate sector, the mid-year U.S. Macro Forecast predicts:
• Apartment vacancy is expected to tick up to about 5 percent by 2016, from 4.2 percent today, with delivery of an additional 200,000 new units by the end of next year. With the multifamily sector’s favorable demographics, though, rents will continue to increase but at a decelerating rate.
• E-commerce and a resurgent auto sector are two primary factors driving a robust industrial sector. DTZ forecasts a record-setting 179 million square feet of net absorption in 2015, with vacancy falling to 7.1 percent.
• The U.S. office sector is forecast to post net absorption of about 80 million square feet in 2015, largely driven by office-using job growth. Year-over-year rental rate growth was 2.3 percent in the first quarter, and rent growth should continue to accelerate in most markets through the end of year, as Class B space (in central business districts) closes a rent-growth gap that has developed over the course of the economic recovery.
• In the retail sector, Class A properties continue to outperform other segments by a wide margin. Demand for new Class A space is soaring, and developers are responding.
“Demand for commercial real estate is strong and, in some sectors, setting new records,” Thorpe said. “Despite some quirks to start the year, the fundamental drivers for U.S. commercial real estate markets remain solid. While we watch economic developments closely, we also note that it takes significant time for most economic movements to filter through CRE markets, and the most important CRE drivers are doing just fine.”
Click here to download the full U.S. Macro Forecast.