Q1 2019 Economic Growth Shines on CRE

Real gross domestic product rose at an annual rate of 3.2 percent, providing hopes of continued positive performance in the commercial real estate industry.
Heidi Learner, Chief Economist, Savills. Image courtesy of Savills

The 3.2 percent annual growth rate of real gross domestic product in the first quarter of 2019—an advance estimate released by the U.S. Department of Commerce’s Bureau of Economic Analysis on April 26—bodes well for commercial real estate. But a closer look at the numbers may hint at a change in the industry’s momentum.

“Q1 2019 GDP was significantly better than expected. As with most things, there’s good news and bad news,” Heidi Learner, chief economist with Savills, told Commercial Property Executive. Positive contributions from personal consumption expenditures, which increased 1.3 percent, supported economic growth in the first quarter, as did private inventory investment, exports, state and local government spending and nonresidential fixed investment. And there was no notable change in inflation. “Inflation is still extremely low, which may keep the Fed on hold for the near term, a positive for asset financing,” Learner said.

The results, however, are a mixed bag. The rise in PCE marked the slowest pace of increase in nearly two years. Imports dropped 3.7 percent, denoting the largest decline in goods imports since the second quarter of 2009. “This is likely somewhat trade-war related, with capital and industrial-related goods imports all falling,” Learner noted. “Real (inflation-adjusted) fixed investment in nonresidential structures continued to decline for a third straight quarter, suggesting a slowdown in appetite for new construction; although investment in commercial and health-care structures increased.” 

On the residential front, weak investment persisted in the first quarter, albeit at a slower rate of 2.8 percent, compared to 4.7 percent in the fourth quarter of 2018. “Residential investment has now fallen for five consecutive quarters, and there is little to suggest a turnaround at this point in the cycle. Recent softness has been more pronounced in the multi-family market,” Learner said.


Patterns and trends underlying the notable increase in economic growth in the first quarter may offer a hint at upcoming change, but the big takeaway is the fact that the economy continued to thrive, producing an optimism that could have a material impact.

“While it’s important to be cautious about any single data point, positive or negative, the fact that GDP growth was materially above expectations may offer a sense of reassurance to some who are concerned that the lengthy economic expansion is winding down,” said Sandy Paul, senior managing director with Newmark Knight Frank. “After nearly 10 years of national economic growth, some investors in commercial property—and tenants in those properties—are pulling back from planned commitments, worried that the expansion cycle will die of old age.  If this GDP reading gives them confidence to move forward with commitments to invest in or lease commercial real estate, that’s good for our industry.”

GDP growth in the first quarter of 2018 was 2.3 percent. The Commerce Department expects to release the second estimate for the first quarter of 2019 on May 30, 2019.