July 26, 2019

Executive Summary

  • GDP grew by 2.1% in Q2 2019, beating consensus expectations of 2.0% but well below Q1’s 3.1% rate.
  • Consumer spending remained healthy with personal consumption expenditures up by 4.3%.
  • Business investment, manufacturing and exports were soft, reflecting ongoing trade tensions.
  • Tepid growth supports expectations of one or two interest rate reductions by the Fed this year, starting with a quarter-point cut next week.
  • Overall, the U.S. economy remains healthy and broadly supportive of property market fundamentals.

Commercial Real Estate Highlights

  • Office: Although overall business investment slowed, demand for intellectual property products remained a positive contributor to GDP. This indicates that one of the primary drivers of office demand—tech—remains intact.
  • Retail: Consumer spending was a bright spot in the Q2 GDP report, with personal consumption expenditures increasing by 4.3% on an annualized basis. This, along with strong labor market conditions and positive consumer sentiment, further illustrates the health of the U.S. consumer. Though consumer preferences are evolving, macro indicators remain generally supportive of retail demand.
  • Industrial: Weakness in manufacturing is balanced by strong consumer demand that continues to underpin the need for distribution and warehousing properties. This demand will continue to support strong market fundamentals in the industrial sector. As trade tensions continue to weigh on the trade of goods and on manufacturing, there may be modest weakness in export-dependent industrial.
  • Multifamily: The housing sector remained a drag on growth. As housing affordability remains an issue in an otherwise healthy economic environment, such conditions will continue supporting demand for multifamily.

The Bottom Line

Today’s estimate of 2.1% GDP growth in Q2 was slightly better than the consensus expectation of 2.0%. Even with a better-than-expected headline number, the data continues to reflect some uncertainty and mixed signals coming from the economy. This, alongside weakness in APAC and EMEA, bolsters the case for the Fed to reduce interest rates one or two times this year.

Overall, the initial data for Q2 2019 showed an economy supported by a strong consumer but tempered by uncertainty and trade tensions. Areas weighing on growth include weakness in business investment and exports. Though some signals may indicate softness in certain sectors, the initial read on Q2 GDP indicates the economy maintains some momentum that will continue supporting real estate fundamentals.

CBRE expects continued GDP growth moving closer to 2.3% for full-year 2019. Figure 1 shows CBRE’s forecast for GDP and other major economic indicators for the next five years.

Figure 1: U.S. Economic Outlook -- CBRE House View (Percentage Changes)


Source: CBRE Research, July 2019.

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