No Recession in Sight, But…

Although economists predict rents and property prices for commercial real estate will decrease over the next year, industry optimism prevails.

November 3, 2018

Lawrence Yun understands the tendency to search for the next recession. The chief economist of the National Association of REALTORS® is asked pretty regularly when the next downturn will occur. “We haven’t encountered a recession for a long time,” he told attendees at Friday’s Commercial Economic Issues & Trends Forum at the 2018 REALTORS® Conference & Expo in Boston. “It is natural to ask, ‘Are we due for one?’”

Yun said that he saw “no major triggers on the horizon” that would suggest a looming recession. And for those who like to point out that the United States experiences a recession every ten years or so, he pointed out that Australia hasn’t had a recession for nearly three decades. “I don’t buy that argument. It’s not about time period.”

Three panelists address attendees at the Commercial Economic Issues & Trends Forum

© REALTOR® Magazine

Left to right: Director of the University of Central Florida’s Institute for Economic Competitiveness Sean Snaith, Commercial Economic Issues & Trends Forum Chair Soozi Jones-Walker, and NAR Chief Economist Lawrence Yun.

Fellow forum panelist Sean Snaith, director of the University of Central Florida’s Institute for Economic Competitiveness, agreed. “There’s no egg timer” on the economy, he told the audience, while predicting a 3.6 percent rise in GDP for 2019 and 2.8 percent in 2020. “I’m a little more bullish than Lawrence… We’re probably good for two years.”

A key reason for optimism is the booming job market. Both economists noted that the current, sub-four-percent unemployment rate is about as close to zero as is feasible in the real world. Yun added that the types of jobs that are now becoming available—particularly those in the professional and business services sector—will benefit agents and brokers working in the office space market: “This is very important for commercial real estate professionals.”

While the economic outlook is generally fairly positive, Yun predicted rents and property prices for commercial real estate will decrease over the next year. He noted that, with rising interest rates there will be fewer eager investors for commercial real estate projects. But Yun offered a grander view of that prediction, noting that after a 93 percent gain over the past eight years, even if commercial real estate prices fell five percent, that wouldn’t represent much of a net change. Still, he predicted friction between consumers in the commercial sector. “Sellers will not reduce [their prices] because the economy is strong,” Yun said. “There will be stubborn owners of apartments and owners of office buildings who won’t budge on price.”

Snaith agreed with the prediction on commercial pricing, and noted that buyers are turning to other investment opportunities as commercial costs increase along with interest rates: “Real estate prices will rise and suddenly projects don’t look as good as they did.”

One looming unknown is trade. Both economists agreed that talk of a full-on trade war seems overblown, but neither wanted to see an escalation in the rhetoric either.  “All this discussion about trade war becomes a trade agreement, then we’re all good,” Yun said. “If there is a trade war, it will lead to an economic downturn in many, many countries.”

Snaith characterized the current conversation about trade as hyperbole, offering the recent deal to replace the North American Free Trade Agreement as proof that the Trump administration’s techniques in this area can pay off.. “What we’ve been witnessing is trade skirmishes,” Snaith said. But still, “there are no winners in a trade war.”

Meg White

Meg White is the former managing editor of REALTOR® Magazine.