Famed economist John Maynard Keynes is believed to have once said, “When the facts change, I change my mind. What do you do, sir?”
This certainly rings true today. For years, economists have said that the cycle has been long in the tooth and that a market correction would soon come to pass. But looking at the current evidence, it doesn’t look like much will change over the next 12 months – at least in the U.S.
This is the main conclusion of research conducted by RERC, a SitusAMC company, and is part of the recently released November 2019 RERC Real Estate Report, “Global Realities.”
Though business and consumer confidence have dipped in recent months and trade war uncertainty is weighing on manufacturing, the fundamentals of the economy remain strong. The unemployment rate has been at 50-year lows and wage growth at post-recession highs for over a year. Inflation remains tame, despite the Fed’s easing of monetary policy, and personal consumption – by far the largest driver of the American economy – has grown since the beginning of the year.
Global realities, including low and even negative interest rates and geopolitical turmoil, have benefited the U.S., particularly in the capital markets. Compared to other developed countries, the U.S. is – and will continue to be – a safe haven. U.S. Treasury yields have dropped significantly over the past few years but still offer better returns on a relative basis. Uncertainty in the global markets will continue to put downward pressure on interest rates, keeping them lower for longer, and ensuring that capital remains widely available.
Real assets that have predictable cash flow will always be in high demand during times of uncertainty. With interest rates heading downward, there may still be room for commercial real estate (CRE) price growth over the next year despite the current ultra-low cap rates. As long as capital remains disciplined, fears of a commercial real estate CRE asset bubble are unwarranted.
The November 2019 RERC Real Estate Report also explores some of the global phenomena impacting the investment environment. It examines the health of the CRE market and offers an in-depth discussion of valuation trends in the property types.
To purchase a copy of the RERC Real Estate Report, visit our online store or call 319-352-1500.
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