The commercial real estate industry should have a strong 2014, if academic economists and former policy makers are right in their predicting that the U.S. economic growth will accelerate this year.
“2014 is going to be a better year,” Martin Feldstein, a professor at Harvard University and chairman of the Council of Economic Advisers under President Ronald Reagan, said yesterday in Philadelphia. “There is no reason for pessimism about our near future if we adopt appropriate policies.”
JPMorgan Chase & Co. (JPM) is among the Wall Street banks turning more optimistic, predicting this week the economy will expand 2.8 percent this year, an increase from its 2.5 percent estimate of a month ago and faster than the 1.9 percent it calculates for 2013.
Former U.S. Treasury Secretary Lawrence Summers and John Taylor of Stanford University agreed in interviews that stronger growth this year was possible even as they clashed over what more policy makers could do to speed expansion.
Federal Reserve Chairman Ben S. Bernanke told a recent conference that headwinds to growth may be abating, cited a healthier financial industry, greater balance in housing, less fiscal restraint and accommodative monetary policy as reasons for optimism in coming quarters.
Bernanke added, “Of course, if the experience of the past few years teaches us anything, it is that we should be cautious in our forecasts”.
Having paid down (or defaulted on) nearly $1 trillion of household debt, U.S. consumers have aggressively improved their balance sheets and are better-positioned to increase spending. According to Federal Reserve data, household debt-service burdens are at their lowest level in more than 30 years,. Also, according to the Fed, Household wealth relative to disposable income has surpassed its historical average. This should give consumers the confidence to spend more of their disposable income, which will result in job creation.
In terms of absorption of inventory, we have seen and likely will continue to see extremely low levels of new supply, 2013 essentially tied with 2011 and 2012 as the weakest year for commercial construction since the late-1970s, according to Census Bureau data.
Investment in commercial real estate should increase as total returns to commercial real estate have been quite strong for three consecutive years now. Those commercial real estate investors who may have felt as if they have missed the party may now conclude that it is safe to go back into the water, based on the analyst recommendations s in favor of commercial real estate we have regularly seen in both the mainstream and financial press.
Commercial real estate’s potential to hedge inflation and interest-rate risks may attract income-oriented investors. Commercial real estate stands out as an attractive alternative that can provide relatively high yields and some degree of inflation along with interest rate protection.
As U.S. economic growth accelerates this year, according to academic economists and former policy makers, the commercial real estate industry should have a strong 2014.
The views and opinions expressed in this commentary are those of Richard D Chapin, PLLC as of the date of publication and are subject to change, and do not necessarily reflect the views of Arizona Elite Commercial Properties and/or its affiliates.
This information is for informational purpose and not intended to be investment advice, and should be explained to you in detail. You should always feel free to consult an attorney and/or tax adviser to obtain further information you deem necessary. I want you to be prepared.