by Kevin Thorpe, Global Chief Economist
The latest string of stock market volatility notwithstanding, global economic conditions affecting property markets remain favorable. Despite some pockets of softness in the economic data recently, real GDP continues to expand in all global regions (~2.5% in the Americas, ~2% in Europe, ~5% in Asia Pacific) and job growth remains healthy in nearly every global city.
It is also true, however, that the global expansion is becoming less balanced and more desynchronized because of several, interconnected factors.
- Americas: tightening of monetary conditions and a stronger dollar is creating a choppier economic environment, particularly in emerging markets like Latin America and Southeast Asia.
- Europe: Brexit woes continue to take their toll on confidence and growth prospects across the eurozone as the withdrawal deadline quickly approaches. However, the eurozone was coming off its strongest growth year in over a decade in 2017.
- China: Growth has also slowed, partly by design, as the government implemented more disciplined growth policies in 2018 to constrain debt. More recently, China has rolled out more pro-growth measures.
- Trade tensions: A source of angst, often wreaking havoc on the global stock market indices depending on the headline of the day. Occasional pullbacks and mini-corrections are by no means unusual. In fact, the world has experienced many periods of volatility throughout this cycle, many periods of uneven growth and several stock market corrections, none of which have precipitated a global downturn.
To be clear, all global regions are still growing and still creating jobs. And commercial real estate has powered through every single one of those episodes, continuing to absorb a healthy amount of space and attract capital.
“Looking past the monthly blips, the underlying fundamentals of still elevated confidence, still tightening labor markets, still low interest rates, a record level of capital still targeting commercial real estate, and stimulus in the U.S. still winding its way through the system—indeed the fundamentals remain strong.”
For proof, look no further than 2018. Many of the same economic and political headwinds the world is experiencing now have been with us throughout the entire year. And how did CRE perform?
- As the data rolls in for Q4, global sales volume is tracking to post a record high in 2018 and property prices continue to appreciate at a healthy clip. Through three quarters, there were $1.2 trillion in property transactions, up 8.4% from 2017 levels, which was the previous peak.
- The global office sector registered another strong year of absorption – tracking to absorb 240-250 msf of office space in 2018—the 2nd strongest year in the current cycle.
- 2018 was also a year of opportunity for occupiers, as new deliveries hit a cyclical high causing vacancy to inflect in many global cities.
- In terms of industrial/logistics, 2018 was a continuation of the single greatest boom the sector has ever seen—occupancy and utilization levels remain higher in more markets than any other time on record in 20+ years of tracking.
In summary, in a year when growth across the world de-coupled, volatility went on a rollercoaster ride, economic growth decelerated in spots, the world’s two largest economies slapped tariffs on each other and threatened a full-blown trade war—in a year like that—commercial real estate thrived. As we look to 2019, certainly there are downside risks, and we are monitoring developments carefully. It is also likely that the recent volatility in December will create a slower start to next year, as investors and occupiers think through what it all means. But there is also compelling evidence that 2019 will be another strong year for the property markets.
Kevin is Cushman & Wakefield’s Global Chief Economist, focusing on global economic trends and forecasts. He and the firm’s worldwide research team produce studies and statistics on topics affecting the global and U.S. economy, capital markets, finance, leasing fundamentals, property and project management and factors that affect supply-demand fundamentals in commercial real estate. Kevin has developed several econometric models to predict market trends, is a member of the National Association for Business Economics (NABE), and has authored numerous studies and survey reports. In 2014, he was recognized as the nation’s most accurate economic forecaster with the NABE’s Outlook Award.