U.S. economic growth continues at a pace above its current ten-year average, despite oil prices forecast to stay above $100 per barrel through 2014, reported international property group Grosvenor in its second quarter North American Research Report.
“The economy is benefitting from increased momentum as employment levels rise, companies remain flush with cash, and sentiment improves,” said Eileen Marrinan, Director of Research for San Francisco-based Grosvenor Americas. “It is our view that macroeconomic trends are strong enough to withstand a serious threat to continued growth.”
Ms. Marrinan added that U.S. commercial real estate investment continues to improve with higher transactional activity, lower cap rates, and more plentiful financing.
The Grosvenor North American research report declined to call the current economy “robust,” noting that real gross domestic product (GDP) growth rates are not expected to top three percent until 2014. “The two biggest challenges affecting the economy are oil prices and the housing market, Ms. Marrinan pointed out. “Both of these, however, already have administered most of their damage.”
And while the economy has seen sharp increases in prices for food and energy, this increase is expected to be transitory, with inflation trending back down in 2011.
Employment growth is the most positive recent trend in the economy, Marrinan noted, with manufacturing and trade being boosted by a competitive dollar, and private nonfarm payrolls increasing every month for one year through
March, 2011. However, analysts are pointing to major shifts in structural unemployment in the U.S. as a result of the recession. “The construction industry is a prime example of why so many people are staying unemployed for so long,” Marrinan explained. “Their skills are simply not in demand, and won’t be for many more years.”
One reason why the construction sector is suffering is the “double dip” in home prices, the report goes on. “Many analysts believe that with increasing employment, demand for housing will rise quickly,” Marrinan stated. “But our view is skeptical on this sequence of events. Housing starts will likely rise, but not nearly to the degree or as soon as optimistic analysts forecast. The demand for for-sale housing has been so adversely affected by the recession that it will be a drag on economic growth while it recomposes itself.”
On the other hand, she pointed out, increasing household formation will continue to boost multifamily housing occupancy. Although clearly ahead of most other property sectors in terms of fundamentals, the national multifamily market had a less-than-stellar first quarter of 2011. Nonetheless, apartment sales were up 47 percent in the first quarter of 2011 compared to a year ago, with activity concentrated in garden apartments. Markets with the lowest apartment vacancy rates include San Jose, Portland, Pittsburgh, Minneapolis, and San Francisco. The highest vacancy rates can be found in Las Vegas, Phoenix, Houston, Jacksonville, and Atlanta.