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CRE Takes GDP Growth’s Third-Quarter Stumble in Stride
Weaker consumption by consumers and slowing private investment caused GDP growth to slow during the third quarter, thereby proving the economy—while still strong—remains vulnerable to disruption. However, JLL chief economist Ryan Severino reports that all of this is expected to turn around in Q4, and commercial real estate is expected to benefit across the board.
Q3’s annualized GDP growth of 2% came in below consensus and represented the slowest quarterly growth rate since the economy began recovering in mid-2020. Growth during the quarter “marked the transition from recovery to expansion as it looks to become more sustainable despite ongoing disruptions,” reports Severino.
“We continue to see the disruptions from last quarter as a speed bump, not a roadblock, and we see signs that the economy is already moving past this rough patch,” he continues. For the moment, “we maintain a positive view toward future economic growth.”
Severino predicts that that the CRE industry will take Q3’s weaker GDP performance in stride. “The markets view the disruptions that restrained growth as temporary,” he writes. “As the factors that held back GDP abate and growth accelerates, CRE of all types stands to benefit.”
He notes that he’ll delve into more detail on the Q3 numbers this coming week, “but for now we maintain the view that CRE is not only seeing past the Q3 data but even the anticipated Q4 rebound. With an eye toward the next economic expansion and business cycle, we foresee space-market fundamentals continuing to improve while capital markets remain buoyant. Risks to the outlook remain, but they seem unlikely to derail the expansion presenting fertile ground for CRE to advance.”
As expected, the Federal Reserve announced this week that it would begin tapering its program of asset purchases. “We anticipate a significant decline, but not a halt, to monthly purchases,” Severino writes. “We anticipate that the rate should fall by as much as 90% from its current pace of $120 billion per month. While this means that the size of the Fed’s balance sheet will continue to increase, the pace should slow considerably on both an absolute and relative (to the size of the economy) basis.”
That tapering should help set the stage for rate hikes, whose arrival Severino anticipates for the latter half of 2022. “With the Fed better managing its messaging than it did during the last business cycle, we see less disruption in the asset markets from tapering this cycle. Nonetheless, the Fed will need to keep managing its views toward asset purchases, rate hikes, and inflation or risk potential fallout in markets.”
- ◦Economy
