Recession Fears Fail To Infect Commercial Real Estate Pros
As the recovery from the 2008 financial crisis evolved into the nation’s longest recorded economic expansion, predicting the next recession’s arrival mutated into something of a fool’s errand.
Spencer Levy, chairman of Americas Research and senior economic advisor at CBRE, joked during a presentation in 2017 that he’d forecasted that a recession was two years out for the past five years. As a result of the often contradictory information regarding the nation’s economic health local commercial real estate professionals say they can’t worry about every twist in the narrative surrounding the arrival of an economic slowdown.
“We pay attention to everything that’s happening in the world, you have to, but we don’t worry about the day-to-day fluctuations,” Matthew Laraway, executive vice president and partner at Hanover-based Chesapeake Real Estate group, said.
But the industry is not immune from the impact of larger economic issues. Jim Caronna, a principal at NAI KLNB, said events in the global economy do impact the industry locally.
Trade wars and tariffs in-particular have roiled Wall Street, stirred uncertainty slowing business investment and created a drag on growth. Most of the negative results of trade disputes with countries like China, he said, have been felt in sectors like steel manufacturing, lumber and agriculture.
Those industries aren’t major players in Maryland’s economy, Caronna said, and as a result the roughly 200 million square feet of industrial and flex space in the Baltimore and Washington region hasn’t suffered a drop in demand.
“At least in the realm of my experience we’re not seeing it dramatically impact leasing or sales at this point in our market places. We still see far more activity on the distribution side than the manufacturing side, but that’s been going on the last 40 years,” Caronna said.
But as 2019 comes to a close there’s a growing list of indicators that the prolonged economic expansion, which started in June 2009, is poised to end.
National Gross Domestic Product, the measure of goods and services provided, is now projected to grow 1.8% between 2018 and 2028, according to the U.S. Bureau of Labor Statistics. That’s the same level the nation produced in the 10-year period starting in 2008.
Financial markets continue to reward investors, but those profits are nearly exclusively the result of strong consumer spending.
Meanwhile business spending is down, the manufacturing sector is already in recession territory, and companies have slowed the pace of hiring.
Total nonfarm payroll employment increased by 128,000 jobs in October, according to the U.S. Bureau of Labor Statistics. That’s lower than the monthly average this year of 167,000 jobs a month, and substantially beneath last year’s average of 233,000 new jobs a month.
In November, according to payroll processing firm ADP, private sector employment decreased sharply. Companies added 67,000 nonfarm jobs last month. That’s the lowest number of jobs created since May, according to the report, when the private sector added 46,000 jobs.
Service-providing sectors, which include education and health, professional and business, and financial activities sector, added 85,000 jobs in November compared to 138,000 in October, ADP found. The goods-producing sector that includes construction, manufacturing and natural resource collection lost 18,000 jobs after losing 13,000 jobs in October.
Job losses and slowed hiring is bad news for an economy expanding only because of consumer spending. People typically rein in expenditures when they start to worry about job security.
A reduction in consumer spending would acutely impact two commercial real estate sectors on opposite ends of the performance spectrum in recent years.
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