LOS ANGELES—CBRE Group's annual US Real Estate Market Outlook for 2018 provides a generally optimistic view of the year ahead. However, Spencer Levy, CBRE's Americas head of research, tells GlobeSt.com that “the range of outcomes is wider this year than it has been in the past, given where we are in the cycle and greater uncertainty around certain forms of fiscal stimulus.”
That uncertainty doesn't extend to tax reform, though. “That's something we see a very high probability of getting done,” says Levy. “Some of us put it at over 80%, and possibly a greater than 50% chance of getting done before Christmas. That would certainly lead to stronger growth in '18 and beyond.”
In the outlook report's section on the US economy, Levy and his team see '18 GDP growth ranging anywhere from essentially flat to 3%. Asked what would influence an outcome at one end of the spectrum or the other, Levy says it's “a combination of macro and micro factors.”
Among those factors are Congress' tax-reform package and the Trump administration's plan to invest in repairing and upgrading infrastructure, which to date hasn't resulted in a concrete program. Also important, though, is that the economy see “no macro shocks, in the form of something like a hard landing in China or an Asian debt crisis—nothing that would derail what appears from a macro basis to be a fairly optimistic growth trajectory.”
What would upend that trajectory would be “a failure of the tax plan or some other shock that would cause a stock market correction, which would lead to the downside of our scenario,” says Levy. “Right now, we're optimistic about China, we're optimistic about Asian countries and optimistic about the tax plan. So the lower end of our scenario, while it is certainly wider than in years past, we consider to be less likely.”
A factor supporting such optimism is that for the first time since the global financial crisis, all of the major global economies are in growth mode. That has strong implications in favor of US GDP growth.
“As a percentage of global GDP, global trade is enormous,” says Levy. “But it is also a flattening percentage: the percentage of global trade as a percentage of global growth actually has flattened over the past six or seven years, in part because of secular shifts including automation where there's more outsourcing.
“Globalization is still the biggest driver of the global economy, but it's not as fast a growth driver as it once was, because its growth has flattened somewhat,” he continues. “But obviously it's a good thing. When China grows, it's good for the US; when the US grows, it's good for China, from the standpoint of both distribution of goods and consumption. Clearly that's a wind in our sails, pushing us forward, and it's a very good thing when the world's economies are growing at the same time.”
Simultaneously, though, Levy points out that growth is not occurring “in an equal manner” around the globe. “So the United States needs to get to a growth trajectory well beyond the 2% range that we've been stuck in for the past seven years, or there's the possibility for continued political infighting. Growth is good, but it has to be faster here. And we also have to address the inequality issue, which is leading to a great deal of intransience.”
With regard to that optimism about the coming year, “there are some areas of strength for '18 where there wasn't in '17, starting with retail,” says Levy. “Let's face it: retail has gotten a lot of negative headlines this year due to e-commerce. But that notwithstanding, our outlook for retail is strong, and the reason for that is that the primary disruptor of retail isn't e-commerce; it's demographics.”
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Paul Bubny
Paul Bubny is managing editor of Real Estate Forum and GlobeSt.com. He has been reporting on business since 1988 and on commercial real estate since 2007. He is based at ALM Real Estate Media Group's offices in New York City.
