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TCN Worldwide’s State of the Market: Central Edition (2017-Q3) | by Hugh F. Kelly, PhD, CRE

National and Macroeconomic Overview
Natural catastrophes, including a devastating series of hurricanes and an intense wildfire season in the Western United States, have stressed many regions of the country during the third quarter of 2017. Nevertheless, the economy has thus far held steady within the moderate bounds of growth that have typified the recovery from the Global Financial Crisis of a decade ago. Although short-term impacts of the storms and fires will make headlines, the economy is large and resilient. It should sustain momentum with year-over-year GDP growth of 2.0% – 2.5% for both the remainder of 2017 and through 2018.
Mixed signals typify the reports from key economic sectors. Consumption, which represents about 70 percent of the U.S. economy, had a second quarter uptick as it did a year ago. In 2016, second quarter personal consumption grew at an annualized rate of 3.8 percent (up from 1.8 percent in the first quarter). This year, second quarter spending hit 3.3 percent (up from first quarter’s 1.9 percent). This pattern of a weak first quarter has frequently been seen since 2010. Existing home sales are running at 5.35 million, up just 0.2% year over year, the median home price is up 5.6 percent from a year ago. An increasing trade deficit acts as a depressant on GDP growth, and while real exports have been up 1.9% (as of August), real imports expanded more quickly at 2.8 percent.
Read more: Central_2017_Q3_State_of_Market_web
Economist Hugh F. Kelly PhD, CRE, who leads TCN’s Real Estate Economic Committee, is Clinical Professor at New York University’s Schack Institute of Real Estate where he has taught for 30 years. He is widely cited in the real estate industry and is a frequent speaker around the world.

NAIOP Industrial Space Demand Forecast | 3Qtr-2017

Demand for Industrial Space Will Remain Robust

Based on over 40 economic and real estate factors such as employment, GDP, exports and imports, and air, rail and shipping data, the NAIOP Research Foundation forecast suggests that net absorption of industrial space could increase slightly through 2018.   Overall, market consensus seems to be that the latter half of 2017 may benefit from a release of pent-up demand due to the election of Donald Trump.

While stories about the “death of retail” are assuredly overblown — with REIS reporting recent quarters of positive net absorption of retail space and the U.S. Census Bureau posting all-time record highs in retail sales — it is increasingly clear that more physical goods will pass through multiple distribution warehouses before reaching consumers’ hands.

New orders of goods are growing, manufacturing activity still appears to be increasing steadily in the U.S. as of the second quarter 2017 which require more industrial facilities, thus the demand for industrial real estate.

Read more: Qtr3 2017-Industrial Space Demand Forecast
In 2009, the NAIOP Research Foundation awarded a research grant to Anderson and Guirguis to develop a model for forecasting net absorption of industrial space in the United States. That model led to successful forecasting two quarters out. A white paper describing the research and testing behind the model for NAIOP’s Industrial Space Demand Forecast is available at naiop.org/research.
For more info about the NAIOP Research Foundation, contact Bennett Gray at 703-674-1436 or gray@naiop.org.

TCN Worldwide’s State of the Market: Central Edition (2017-Q2) | by Hugh F. Kelly, PhD, CRE

National and Macroeconomic Overview

There is no more recurrent question posed in real estate analysis than, “Where are we in the cycle?” The mood amongst economic forecasters can best be described as “benign.” While there is a general consensus that the present expansion is getting long in the tooth, at 96 months and counting, most (correctly) assert that business cycles do not die of old age. For the record, this is already the third longest upcycle since 1850. But it is also the weakest since World War II. The upcycle of the 1990s reached 120 months, but averaged 3.6% annual real GDP growth over that decade. The recovery since the Global Financial Crisis has averaged a bit under 2.1% annually. Given slower labor force growth (even absent a lower participation rate) and decelerating productivity improvements, the baseline growth in the years ahead appears to be in the 1.7% – 1.9% range. Expectations of a return to the growth of the 1990s simply cannot be justified in the numbers.
Some comfort is being taken by the absence of typical signs of economic overheating that often precede recessions. Inflation remains quiescent, with low energy prices driving prices at the gas pump down to near $2.00 per gallon during the peak summer travel season. The Federal Reserve has been gradually raising its benchmark rates, but is being careful to avoid squeezing economic growth in the process. The “Trump Bump” in stock prices has shown staying power on Wall Street, but as the year advances it becomes clearer that the agenda of tax reform, infrastructure spending, Dodd-Frank rollback, and entitlement reduction will not be accomplished in 2017. Hence, there is probably greater fragility in the economy than the consensus acknowledges and risk is present from either domestic disappointments or international disruption.
Read more: Central_2017_Q2_State_of_Market_web
Economist Hugh F. Kelly PhD, CRE, who leads TCN’s Real Estate Economic Committee, is Clinical Professor at New York University’s Schack Institute of Real Estate where he has taught for 30 years. He is widely cited in the real estate industry and is a frequent speaker around the world.

TCN Worldwide State of the Market – Central Edition (2017-Q1) | by Hugh F. Kelly, PhD, CRE

Central Region Economic Conditions
Temptation for economists, leading to forecasting out of the rear view mirror. Stresses over the past several years in key industry sectors
in the Central states have meant an unaccustomed slowdown of growth in many key states. But this now appears to be changing as the forces
shaping manufacturing, agriculture, and energy either find their bottoms or begin to accelerate from a period of sluggishness.
The precipitous drop in energy prices, for instance, seems to have run its course. For the past year, crude oil prices have settled into a narrow range close to $50 per barrel. Expectations that economic growth will spur demand is encouraging an increase in rig counts in the Permian Basin and increasing exploration in the Bakken region further north. The multiplier effects of renewed energy industry growth are positive for the Central states as a whole. The year is beginning with fairly positive conditions for the Breadbasket, with strong prices for a variety of agricultural products, including soybeans, cattle, hogs, and winter wheat.
Read more: Central_2017_Q1_State_of_Market_web
Economist Hugh F. Kelly PhD, CRE, who leads TCN’s Real Estate Economic Committee, is Clinical Professor at New York University’s Schack Institute of Real Estate where he has taught for 30 years. He is widely cited in the real estate industry and is a frequent speaker around the world.

TCN Worldwide Ranks in Top 10 Brokerage Firms | by H. Ross Ford III

TCN Worldwide Ranks in Top 10 Brokerage Firms in NREI’s 2016 Top Brokers Survey
Commercial real estate brokerage firms posted another strong year, growing both leasing and investment sales volumes, according to data provided to National Real Estate Investor as part of their annual ranking of top commercial real estate brokers.
We are pleased to announce TCN Worldwide was recognized as one of the industry’s top brokerages, ranking 8th (by Deal Volume at $58.6 Billion), in National Real Estate Investor’s 2016 Top Brokers Survey.
The top commercial real estate brokerage firms posted robust year-over-year gains in deal volumes in 2015. National Real Estate Investor reported that the firms that ranked in the top 20 in each of the past two years posted average transaction volume growth of 15.0 percent from 2014 to 2015.
The NREI ranking reaffirms TCN Worldwide’s position as an industry leader, and one of the top brokerages in the commercial real estate industry.
See TCN’s Top 10 Member Deals for 3rd Quarter 2016.
Read more: TCN Worldwide’s Commercial Focus Newsletter | 2016_Q3
—H. Ross Ford III
President & CEO, TCN Worldwide

TCN Worldwide State of Market – Central Edition (2016-Q3) | by Hugh F. Kelly, PhD, CRE

National and Macroeconomic Market Overview
The Bureau of Economic Analysis “final” GDP estimate for the Second Quarter was released on September 29, 2016.   It showed overall economic growth at a 1.4 percent annual rate.  This was the third consecutive subpar quarter, and confirmed that the long expansion (now at 86 months in duration) is slowing its momentum.  The initial Third Quarter estimate will not be out until early November.  Preliminary data indicate continued sluggishness. Retail sales are up just 1.9 percent year over year.  Housing starts, permits, and home prices slipped during the summer.  Industrial production and capacity utilization are also in decline from 2015.
More positively, net real exports have risen for the last several months, and this should be strengthening GDP during the second half. The
auto industry has also been trending upward. Incomes have started to rise, and for the first time in this cycle lower and middle-income households are benefiting materially, according to a Census Bureau study released in September. This is contributing to a small uptick in inflation, with core CPI now up 2.3 percent year over year.
Read more: 2016-central_q3_state_of_market
Economist Hugh F. Kelly PhD, CRE, who leads TCN’s Real Estate Economic Committee, is Clinical Professor at New York University’s Schack Institute of Real Estate where he has taught for 30 years. He is widely cited in the real estate industry and is a frequent speaker around the world.

Economic and Real Estate Market Snapshot-Q2 2016 | Shenehon Co.

Shenehon Company has released the 2nd Quarter 2016 Economic and Real Estate Market Snapshot.  The report highlights the following topics:

U.S. economy continued to expand in the first half of 2016
The energy industry continues to be hamstrung by a glut of supply and tepid demand
Leading indicators suggest economic growth at a modest pace through at least the immediate future
Tighter unemployment rates are putting upward pressure on wages
Home sales in the Twin Cities increased by 6.2% through May and sale prices rose by 5.6%
Twin Cities multifamily permitting activity is down

READ ENTIRE MARKET REPORT—Shenehon Twin Cities Market Report – Q2 2016

TCN Worldwide Economic Report – Central Edition (2016-Q2) | by Hugh F. Kelly, PhD, CRE

Regional Conditions in the Central States                               
The Central states, with an employment base of 55.6 million, has the largest number of jobs of the three regions analyzed in our newsletters.  However, with an aggregate job growth of just 31,000 spread over nineteen states, the Central region has the lowest number of additional jobs and the slowest growth rate (1.1%). Texas, with a year-over-year job gain of 171,800 (1.5%) is the regional standout in absolute growth, but Tennessee posted a faster pace of job gains, 2.1% (versus the US average of 1.7%) on the addition of 60,900 positions. On the other side of the coin, Kansas, Louisiana, North Dakota, and Oklahoma saw employment contract in the past twelve months. Unemployment ranged from a low of 2.5% in Tennessee and 3.0% in Nebraska, to highs of 6.3%
in Louisiana and 6.4% in Illinois.
Although far from the oceans, the Central region has an extraordinary role in international trade. Texas has an annual import/export volume of $502 billion, with Michigan ($177 billion) and Illinois ($185 billion) in the top tier trade states as well.  Tennessee and Ohio also engage in more than $100 billion in global trade annually. While lower in volume, four states with agricultural and/or energy concentrations in their economies show surplus trade balances (more exports than imports) in an era where the country as a whole has long been in a deep trade deficit.
Texas, with its enormous total volume, has a very thin trade deficit of just $404 million. Globalization, then, has been a mixed blessing for the region – possibly costing a number of jobs, but generating employment as well in sectors ranging from agriculture and energy to transportation and wholesales, and in manufacturing sectors including precision instruments and transportation
equipment.
  INTERNATIONAL TRADE VOLUMES BY STATE

Healthcare is reported to be a bright spot in the regional economy, as is professional and business services in and around Minneapolis, Kansas City, and Dallas. The energy slump has impacted several parts of the region, and accounts for the bulk ofthe economic contraction in states like Louisiana, Oklahoma, and North Dakota. Residential construction is constrained by rising labor costs
and by tightening underwriting standards at bank lenders. Commercial development lending is also being carefully underwritten, limiting new development. This will have the likely effect of lengthening the real estate cycle, which has not seen the volume of construction that is typical in a late-stage business expansion.  Basel III capital requirements, the regulatory impacts of Dodd-Frank oversight, and the “lessons learned” by banks caught with billions of land and development loans in the Global Financial Crisis all contribute to the constrained credit environment.
READ ENTIRE REPORT–TCN Economic Report – 2016_Q2_Central
 
Economist Hugh F. Kelly, PhD, CRE, who leads TCN’s Real Estate Economic Committee, is a Clinical Professor at New York University’s Schack Institute of Real Estate where he has taught for 30 years. Kelly specializes in development of economic and market forecasts, portfolio strategy, as well as seminars and workshops. He heads his own consulting practice, Hugh F. Kelly Real Estate Economics, which serves national and international real estate investment and services firms, governmental organizations, law firms, and not-for-profit agencies. Kelly is widely cited in the real estate industry and is well known for his research on 24-hour cities and commercial real estate investment performance.

NAIOP Office Space Demand Forecast

New Report by the Research Foundation
Office Space Demand Forecast:
Second Quarter 2016
Key report findings:

The national office market is forecast to absorb approximately 34.6 million square feet of space in 2016, down from 62.1 million square feet in 2015, as economic growth flattens in the U.S.
GDP growth, which slowed to 0.5 percent in the first quarter of 2016, is forecast to remain low, near 1 to 2 percent annualized growth, with the lower boundary of the GDP forecast dipping into slightly negative territory.
The current forecast projects net absorption of office space to regain some strength in 2017, totaling approximately 46.2 million square feet. However, this figure could change, depending on how the economy fares throughout the rest of 2016.

 
Economic Flattening Points to Declining Demand for U.S. Office Space Through 2017 

The national office market is forecast to absorb approximately 34.6 million square feet of space in 2016, down from 62.1 million square feet in 2015, as economic growth flattens in the U.S., according to Dr. Hany Guirguis, Manhattan College, and Dr. Joshua Harris, University of Central Florida. Gross domestic product (GDP) growth, which slowed to 0.5 percent in the first quarter of 2016, is forecast by the model to remain low, near 1 to 2 percent annualized growth, with the lower boundary of the GDP forecast dipping into slightly negative territory. The current forecast projects net absorption of office space to regain some strength in 2017, totaling approximately 46.2 million square feet. However, this figure could change, depending on how the economy fares throughout the rest of 2016.
“Employment, both overall and in the office-using sectors, had maintained fairly steady growth until the most recent reading for April 2016, which registered only 160,000 net new jobs. This was well below the 200,000 jobs-per month threshold considered the minimum necessary for sustained economic growth,” says Harris.  “We expect the overall declines in macroeconomic output to continue to result in lower employment gains for the rest of 2016.
Read more:  Office Space Demand 2Q16
By: Dr. Joshua Harris, University of Central Florida and Dr. Hany Guirguis, Manhattan College

TCN Worldwide’s Economic Report – Central Edition (2016-Q1) | by Hugh F. Kelly, PhD, CRE

Overview of National Economic Trends
The major macro-economic indi­cators. The First Quarter doldrums struck again in 2016. Relatively weak job gains in January (168,000 net new jobs for the month) were a drag on First Quarter totals, with the three-month employment increase at just 628,000. The pattern of the past several years has been economic ac­celeration in the Spring and Summer months. Year-over-year, U.S. employ­ment gains exceeded 2.8 million, or 2.0%. Wages are starting to respond to the low five percent unemployment rate, with average hourly earnings up 2.3% for the year. These are “real” wage gains, as the CPI increase for the 12-months ending March 2016 was just 0.9%.
Although recent in­creases in energy prices suggest some upward inflation to come, the US Energy Information Agency pre­dicts that gasoline prices will aver­age $2.04 per gallon nationally this summer, compared with $2.63 per gallon last year. That could buoy retail spending and vacation travel for con­sumers, which would be a welcome trend for the stores and hotels sector of the economy. The stock market gyrations certainly raised the level of nervousness across the econo­my. The VIX was high and the drop in the equities indexes during the first six weeks of the year was more than 10%. But since that “bottom”, stock prices are up more than 15%. We are entering the Second Quarter with positive momentum.
Read more: TCN Worldwide’s State of the Market | 2016_Q1_Central
Economist Hugh F. Kelly PhD, CRE, who leads TCN’s Real Estate Economic Committee, is Clinical Professor at New York University’s Schack Institute of Real Estate where he has taught for 30 years. He is widely cited in the real estate industry and is a frequent speaker around the world.