While downside risk exists, the U.S. economy is poised for another strong year, and Charlotte is well positioned to continue to thrive. These and other topics were key messages during the 12th Annual Outlook on the Commercial Real Estate Market in downtown Charlotte hosted by Katten Law and Cushman & Wakefield.
During her presentation, Revathi Greenwood, Americas Head of Research for Cushman & Wakefield, outlined several key trends for 2019: the current economy and recession indicators, talent shortages, geographic expansion of the technology sector, industrial strength and commercial real estate capital flows.
- Recession indicators: The current expansion is on track to become the longest in U.S. history by the middle of 2019. There is softening in some metrics (e.g., the yield curve has compressed lately and the stock market has experienced volatility), but job creation, consumer confidence and small business optimism continue to be sturdy. Most economists expect the economic expansion to continue through 2019.
- Talent availability: December 2018 marked the 99th consecutive month of U.S. job growth. That is twice as long as the previous high of 48 months between July 1986 and June 1990. At 3.8%, the unemployment rate in Charlotte is in line with the U.S. average, and it is forecasted to remain below 4% through 2019. Strong job growth and a disproportionately high number of college graduates (34.4%) will continue to make Charlotte an attractive place for companies to move and expand. Charlotte is forecast to be the 4th fastest growing U.S. city for young worker population (ages 25-39) during the 2020’s, increasing that cohort by 25%.
- Tech sector expansion: Rents and real estate values have increased faster in cities with a large tech sector presence. Charlotte has over 65,000 tech workers and is considered one of the 25 markets Cushman & Wakefield has identified in its most recent Tech Cities The growing fintech sector has helped Charlotte experience above average rental rate growth over the past eight years. Over that same time, the average price per square foot of office space sold has more than doubled in Charlotte, putting its appreciation behind only Austin, San Francisco and Silicon Valley among the 25 tech markets.
- Industrial demand: Charlotte is well situated as a distribution hub with over 50% of the U.S. population within 650 miles. There was over 4 msf of net absorption in the Charlotte market each of the past two years, and Cushman & Wakefield is forecasting 2019 absorption to be significantly higher. This strong tenant demand will offset most of the new construction coming online in the next 12 months.
- Commercial real estate capital flows: The amount of capital targeting North American commercial real estate was just shy of $200 billion in January of 2019, up 113% from four years ago. This demand has led to, and is likely to continue to drive, strong sales activity—likely to be bolstered by Opportunity Zone Legislation. Charlotte set a record in 2018 with $5.3 billion of sales across multifamily, office, industrial and retail assets. This placed Charlotte as 12th among secondary U.S. markets.
These are several of the reasons that optimism remains high for 2019. Indicators point to another strong year for the U.S. economy and most commercial real estate markets. Charlotte has a number of strengths—strong labor force, low costs of living, warehouse/distribution reach, diverse office economy—that will allow it to thrive as this expansion continues.
Sources for data cited in this blog post include: U.S. Bureau of Economic Analysis; U.S. Bureau of Labor Statistics; U.S. Census Bureau; Moody’s Analytics; Prequin; RCA; Cushman & Wakefield Research
Will Propst, Research Analyst – Since joining Cushman & Wakefield in 2018, Will has provided market intelligence to the greater Charlotte region primarily focusing on the current and future trajectory of the Office and Industrial markets. A current Master’s student at UNC Charlotte’s Childress Klein Center for Real Estate, Will continues to focus on local and national trends affecting Charlotte’s real estate market.