Executive Summary
- GDP grew at a robust 3.2% in Q1, topping expectations of around 2.5%.
- Following a weak January due to the December stock market correction and the December-January partial government shutdown, this was particularly positive news and likely bodes well for a stronger 2019 than anticipated.
- CBRE’s forecast of 2.4% overall GDP growth in 2019 may be revised up considering today’s positive surprise.
- Strong growth raises concerns that the Fed may resume tightening later this year.
- CRE fundamentals in Q1 were also strong, matching the overall economy.
Q1 GDP growth well exceeded market expectations. Fears of a weak Q1 due to the partial government shutdown, a material drop in consumer sentiment and the December stock market correction proved unfounded. Some weakness was apparent with only a modest 1.2% increase in consumer spending, clearly a reaction to the December stock market decline. The positive surprise in GDP growth was largely due to a sizeable increase in exports (+3.7%) and decline in imports (-3.7%).
Commercial real estate fundamentals in Q1 mirrored the strength of the overall economy, with strong performance by all major asset classes. CRE highlights include:
- Office: Overall asking rents increased by 4.4% year-over-year in Q1 (7% for downtown markets).
- Retail: Total retail sales were up by 3.2% year-over-year in Q1 and overall asking rents increased by 4.8%.
- Industrial: The overall availability rate of 7% in Q1 was the lowest level since 2000 and the average asking rent hit an all-time high of $7.51 per sq. ft. since CBRE began tracking this metric in 1989.
- Hotel: The occupancy rate of 61.8% set a new Q1 record, although the pace of ADR growth slowed from a year earlier.
The better-than-expected GDP growth in Q1, a pattern we are seeing elsewhere in the world, will clearly increase momentum for 2019 and may expand our GDP forecast for 2019, as well as increase the odds of a Fed tightening later this year. Today’s GDP announcement increases our confidence that commercial real estate will continue to benefit from a robust macroeconomic environment in 2019.
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