Long Wait for Growth May Be in Store, Linneman Tells NAI Global Forum
- Mar 31, 2010
Prospects for the U.S. economy, public policy and commercial real estate industry drew a mixture of skepticism and cautious optimism in New York City this week at NAI Global’s annual market outlook.
Even as the picture brightens somewhat, Peter Linneman, NAI Global’s chief economist and a professor at the University of Pennsylvania’s Wharton School of Business, struck a note of caution. “We’re going to have a very strong economic recovery over the coming three years to mediocrity,” Linneman predicted.
Corporate profits have now grown for five consecutive quarters, a trend that bodes well for job creation; still, Linneman reminded the audience of several hundred real estate professionals that the job market has a steep mountain to climb. Today’s economy is a staggering 10 million jobs short of the 2008 total. Judging by historical patterns, the job shortfall would translate into a five and a half year wait to restore real estate rents and occupancy to early 2008 levels, Linneman pointed out.
However, his analysis also left the door open for faster progress on the employment front. A job market that recovered at twice the usual pace would return the market to pre-recession levels as early as 2013. Such an outcome is possible, he argued, especially since the deepest valleys tend to precede the fastest recoveries in the U.S. economy.
Speaking the day President Obama signed the health care bill into law, Linneman cited the long uncertainty over the future of the nation’s health care as a major culprit in the recession. For nearly two years, a sector that represents nearly one-fifth of the economy was unsure whether it would soon be subject to wage and price controls. That severely hampered economic growth across the board and took a toll on commercial real estate.
“You can’t freeze 19 percent of the nation’s economy and expect growth,” Linneman explained. “You can’t freeze 19 percent of the nation’s economy and expect innovation.”
Health care will lead the recovery, but the comeback will be slow; at first, the industry will have to restore staffing to pre-recession levels before adding new positions.
Meanwhile, the recovery faces other hazards, such as the inflationary threat created by the fiscal policies of both the Obama and George W. Bush administrations, Linneman contended.
In an interview after the presentation, NAI Global CEO Jeff Finn cited growing indications that the worst of the recession is likely over. “The second half of 2009 really began to pick up—again from a very low low,” Finn told CPE. Although commercial real estate is still experiencing problematic rent and vacancy trends, investment and leasing opportunities exist in all property sectors, he explained. The short-term leasing cycle associated with apartment properties makes the multifamily cycle particularly attractive. Finn added.