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SAN DIEGO— The economic cycle's longevity is starting to have an impact on the way commercial real estate investors are thinking, Ten-X's chief economist and EVP Peter Muoio, Ph.D, tells GlobeSt.com. In fact, he believes we are close to being in the second-longest expansion since World War II.
Muoio will be speaking at the annual Trigild Lender Conference here Oct. 18-20, which will focus on the outlook for the economy, capital markets and real estate. We sat down with him for a chat about the current cycle and other indicators fueling economic uncertainty.
GlobeSt.com: Where are we now in the cycle related to prior US expansions?
Muoio: We are now just a few months short of being the second-longest expansion since World War II. In our view, the cycle's longevity is in itself starting to have an impact on the way commercial real estate investors are thinking. Time and again, I hear comments that begin with “at this point in the cycle” that are followed by some variant of more caution and conservatism. In our view, this eyeing of how long the expansion can persist, along with higher rates, are key reasons behind the drop-off in deal volume since last year and the sideways movement of pricing.
GlobeSt.com: What landmines could disrupt the current expansion?
Muoio: Policy misfires in DC (budget, tax changes, debt ceiling, tariffs, etc.); a credit-market tightening owing to problems in retail; and global events, ranging from how Brexit talks play out to hot spots in the Middle East and the North Korea situation.
GlobeSt.com: What are some of the other indicators fueling economic uncertainty?
Muoio: I am surprised that uncertainty gauges are not higher given the policy disarray in Washington, DC. The whole host of issues I mentioned above, plus potential healthcare overhaul, trade frictions, the immigration situation—all of these have the potential to disrupt consumer and investor confidence. Certainly, also, if we were to see a cluster of weak economic indicators, the anxiety over the staying power of the expansion would be heightened. Finally, the Fed is looking to tighten and begin to unwind its bond holdings, but doing so amid still-low inflation figures, so the potential for a misstep that upsets credit and liquidity is also out there.
GlobeSt.com: What is the potential impact on CRE of current hot-button policies like immigration, deregulation, and healthcare?
Muoio: There are so many potential policies in play that could have positive and negative impacts on commercial real estate. One amalgam of disparate polices we have been talking about is the potential for construction costs to be pushed up, affecting development costs and limiting new supply. Immigration restriction would likely drive up construction-labor costs, as would competing demand for labor from a large infrastructure program. That would also bid up materials prices, which would also be affected by construction of a border wall, “Buy American” policies and any tariffs. None of these are intended consequences, and all these policies are being discussed separately, but from the commercial real estate perspective, they all potentially add up in one direction. Any policies that boost economic growth (tax cuts, deregulation to name just two) would boost demand for space.
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Carrie Rossenfeld
Carrie Rossenfeld is a reporter for the San Diego and Orange County markets on GlobeSt.com and a contributor to Real Estate Forum. She was a trade-magazine and newsletter editor in New York City before moving to Southern California to become a freelance writer and editor for magazines, books and websites. Rossenfeld has written extensively on topics including commercial real estate, running a medical practice, intellectual-property licensing and giftware. She has edited books about profiting from real estate and has ghostwritten a book about starting a home-based business.
