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Is the Economy Starting to Slow?

December 02, 2015 | John Salustri

Well, ask three economists their opinions and you’ll get four different answers. It seems we’re at that point in the market upcycle that the crystal balls are getting a bit hazy. But, peering through the haze, we can make out some vague shapes of things to come.

Citing a recent Situs RERC survey, says that “according to some investors, prices are outpacing the value of the properties they represent, and when comparing the high prices of commercial property in 2015, it is looking all too much like 2007 all over again.” Prompting that worrisome outlook was a series of recent multi-billion dollar deals, such as the sale of Peter Cooper Village/Stuyvesant Town and Equity Residential’s portfolio sale to Starwood Capital, causing Situs to conclude that “capital flows have caused prices and deal sizes to reach a critical juncture.”

In the report, Situs tells of concerns, “ranging from an ‘anemic economy and political uncertainty’ domestically to expectations of interest rate increases and a declining stock market. One respondent noted, ‘If markets are priced to perfection, as they appear to be, any volatility could tip the markets dramatically in rapid order. However, if the markets stagnate, a whole different set of dilemmas could occur.’ ”

Situs chief Ken Riggs said as much in JPM’s 2016 Outlook, projecting that while fundamentals will continue to improve in 2016, it won’t be at the same rate.

But it appears that the slowdown might be more a function of property type and region than a cause for widespread national alarm. As writer Joseph Dobrian reports in that same JPM feature, “key indicators point to a boom year for multifamily, and the challenge for managers will be to offer the tenant more bang for their rental buck.” He quotes Norman Radow of the RADCO Companies, who sees homeownership continuing the slide it began during the last economic unpleasantness, a good thing for multifamily.

DTZ chief economist Kevin J. Thorpe told Dobrian that the cycle is getting long in the tooth, “so we’re looking for things to go wrong at this point.” Not necessarily the last thought you want to have before retiring for the night, but he’s quick to add: “As of right now, the fundamentals of the US economy look as healthy as ever. And while ’16 may not be what ’15 was, demand will be strong enough to push new development, which means the CRE pie will grow. From the property management standpoint, you’ll be very busy.”

That view was supported in Transwestern/Delta Associates’ Q3 Insights + Trends + Opportunities. The report states that, “after a slow start to the year, the US economy performed very strongly during second-quarter 2015, but job growth weakened considerably during the third quarter, leading to renewed concerns about short-term economic performance. In spite of these concerns, most fundamentals remain positive and should drive continued growth through 2017.”

The consensus seems to be that while 2016 won’t be the bell-ringer we would hope, neither will it be 2008. That day is sure to come; the market is still cyclical and deserves a bit more caution. But no one is going to have to sell the farm, the experts say. At least, not next year.

About the Author
John Salustri is one of the nation’s most respected writers in the field of Commercial Real Estate. A multiple award winner for excellence in journalism, John is the founding editor of, the nation’s premier news and information site for the commercial real estate industry. Today John is a freelance writer and editor, focusing on helping companies boost their industry presence through enhanced web and print content. 

Photo Credit: Steve Snodgrass via Compfight cc

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