Executive Summary
- GDP grew by 1.9% in Q3 2019, beating consensus expectations of 1.6%.
- Consumers continue to underpin growth with personal consumption expenditures up by 2.9%.
- Business investment remained soft, while exports stabilized.
- The Fed cut short-term interest rates by 25 bps to a target range of 1.5% to 1.75%
- CBRE expects growth to continue at lower levels through 2020.
Figure 1: U.S. Economic Outlook - CBRE House View (Percentage Changes)
Source: CBRE Research, October 2019.
Commercial Real Estate Highlights
- Office: Uncertainty, particularly related to trade tensions, is weighing on business sentiment and depressing investment. Nevertheless, demand for intellectual property products remained a positive contributor to GDP—important for the office sector since tech is a primary driver of demand.
- Retail: Consumers continued to drive economic growth with personal consumption expenditures increasing by 2.9% on an annualized basis. With healthy employment growth and low unemployment driving wage gains, consumer sentiment remains elevated. These dynamics are very supportive of retail demand.
- Industrial: Healthy consumption, which drives demand for distribution space, is supporting the industrial market. While trade tensions continue to weigh on manufacturing, exports stabilized from their drop in Q2—a positive indicator for demand from manufacturing.
- Multifamily: The housing sector rebounded as interest rates dropped. Affordability issues persist, helping fuel demand for multifamily housing. With the healthy labor market supporting household formation, demand will remain firm.
General Overview
Q3 2019 GDP growth of 1.9%, although above expectations of 1.6%, is consistent with CBRE’s view that growth will continue to slow due to uncertainty weighing on business sentiment, waning effects of fiscal stimulus and lagging effects of monetary policy.
Consumers continue to fuel economic growth, but businesses are spending less due to uncertainty. Mixed economic signals have implications for real estate demand, with some sectors remaining resilient and others like manufacturing remaining vulnerable to on-going trade tensions and slower exports.
Even considering risk factors, CBRE’s view is that economic conditions generally remain supportive of real estate fundamentals. Furthermore, the Fed’s third rate cut this year will help ensure economic growth continues. By lowering short-term interest rates by 75 bps in 2019, monetary policymakers are acknowledging slowing economic activity and a more clouded outlook. Though a pause in rate cuts would not be surprising, CBRE anticipates two additional rate cuts in 2020. CBRE’s view is that lower interest rates will help ensure continued economic growth and real estate demand in 2020.
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