Economic & Real Estate Report - 3Q 2015

Economic & Real Estate Report - 3Q 2015

Real Estate & Infrastructure

November 23, 2015

The United States (U.S.) economy lost some momentum during the third quarter, as the advance estimate of GDP reflected a slowdown from the prior quarter amidst volatile global economic conditions, the strong U.S. dollar continued to negatively impact American manufacturing and trade, and the Thomson Reuters/University of Michigan Index of Consumer Sentiment fell to its lowest level in eleven months in September, driven by consumer concern regarding the global economy. Additionally, despite a slight dip in the unemployment rate, new job creation during the summer months resulted in the fewest positions added since 2Q12. Other labor market concerns included sluggish wage growth and a continued decline in the labor participation rate.

In September, the Federal Reserve decided to keep its benchmark interest rate near zero primarily due to concerns tied to the global economic slowdown, low inflation in the U.S. and financial market turmoil. A statement issued by the Federal Reserve at the end of October indicated the possibility of a rate hike in December, as officials’ views of international economic pressure were less pessimistic.

On the positive, many economic indicators give rise to optimism. The Conference Board Consumer Confidence index increased moderately in September and spending from consumers remained solid, especially on big ticket items such as automobiles. Rising household formations also continued to positively impact the housing market, resulting in improving builder sentiment, a faster paced existing home sales activity and home price appreciation. Also, construction spending increased in September and is up 14.0% during the past year.

Sustained demand for U.S. commercial real estate assets continued during 3Q15. The latest commentary and market data from prominent commercial real estate data providers and corporations were generally indicative of healthy market fundamentals, illustrated by higher occupancies, rental rate appreciation, steady absorption and increased development activity. Still, it was reported that investment sales activity slowed during the summer months from the pace recorded during the first half of the year, which was primarily due to a drop in portfolio sales activity. As property values trended higher, per the latest PwC Real Estate Investor Survey, capitalization rate compression has continued. Additionally, leading commercial real estate indices such as NCREIF, Moody’s/RCA and Green Street continue to indicate healthy price appreciation for the majority of commercial real estate assets.


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