NEW YORK CITY-Despite steady employment growth and solid commercial real estate activity in 2011, the majority of GlobeSt.com readers are still on the fence about what 2012 holds in-store for leasing, sales and development. Results from last week’s GlobeSt.com’s Quick Poll show that 56% think the economy will show little or no improvement in 2012, while 13% say it will “suck worse than 2011.” At the same time, 31% claim the market will lay flat until the third quarter--and then soar.
Kenneth McCarthy, senior economist and senior managing director of research at Cushman & Wakefield, tells GlobeSt.com that many of these concerns are stemming from the Eurozone crisis and domestic policy issues in the United States. “A lot of times people take the recent past and project it into the future,” he says, noting that the second-half slowdown from S&P’s downgrade and debt problems overseas still weigh heavy on people’s minds. “Europe is still very much unclear about how that’s going to be resolved. We’ll have a period when everything looks like it is starting to get resolved, markets will get better and people will be more optimistic, and then you may have another crisis occur. People get a little gunshy about that.”
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Peter Hennessey, president of the New York Tri-State region at Cassidy Turley, tells GlobeSt.com that the malaise in the business community relates more to Washington than to Europe. “There’s so much uncertainty and a consistent amount of gridlock since the last election, really,” he says. “People have low expectations about a lot of things getting accomplished. There’s uncertainty in terms of job growth, and fundamentally, the growth of the economy.”
Adding to that, McCarthy says, is the upcoming Presidential election. “In the US, we are still looking at a budget and debt ceiling debate that’s still looming,” he says. “There’s been a lot of uncertainty about the tax environment, the political environment and the financial environment, and in that kind of environment, businesses tend to be more cautious.”
Conversely, Peter Slatin, associate publisher and editorial director at Real Capital Analytics, tells GlobeSt.com that the Presidential race will help energize commercial real estate toward the second half—not hurt it. “There will be lots of vitriol,” he says. “Even though people love to point their finger and say President Obama is anti-business, the economy is not dead.”
For 2012, Slatin says RCA is forecasting a 50% jump in CRE volume growth in the US, and $300 billion in total transactions for the year. He says to watch out for apartment trades, large office deals and other big transactions across the board.
“There’s plenty of money out there interested in real estate,” he says. “Finding the right conditions on which to act are going to be tricky, but I think there will be increased investment. While Europe and the CMBS market gets sorted out, we believe there could be as much as $50 million in securitizations.”
Hennessey agrees that the election will help the CRE community recover later in the year. “If we end up with a different president than we have today, the American people have given a relatively clear message that the policies that existed before are not the policies they want to see continued in place,” he says.
While readers expect the economy to stay flat, McCarthy explains rays of light do exist. “What people really mean is that things are going to grow slowly,” he says, noting that the Labor Market indicators have gotten “a little bit healthier” over the last couple of months. The economy added 200,000 jobs in December, causing the unemployment rate to drop to 8.5%.
“There’s an underlying strength here,” McCarthy says. “Even as we were getting all this negative news last year, layoffs started to go down. Employment growth actually started to pick up a little bit after September. Corporate profits are still very healthy, so businesses have a lot of cash. They have the ability to hire, and it looks like there’s enough demand growth in their business. That’s a very positive sign in an uncertain environment – businesses are still hiring, and it looks like it is starting to pick up.”
He says the New York market overall will be healthy, despite headwinds in the financial sector. Other industries—such as technology, law, advertising and accounting—are showing high growth throughout the city.
“They are all hiring,” he says. “We have enough positives that we could absorb a slowdown in the financial services sector and not see weakness. At the same time, it’s not going to be another boom. It will be a slow growth year for New York due to the sluggishness in financial services.”
But the tide could turn. “If the markets move positively, the financial services industry can easily turn around and start hiring again.”
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