As we head into 2015, the US Economy is leading the world. Our economy is growing and jobs are being added. However, the world economy has been struggling, causing concern that lackluster global results could become a drag on the US momentum. As a result, we are faced with some good, some bad and hopefully not ugly, to keep an eye on in 2015:
US Unemployment Rate – 5.6%. Lowest level since August 2008. However, Real Compensation Per Hour in the US has remained flat over the past five years.
Gross Domestic Product – 5.0% (third quarter). Coupled with a 4.6% second quarter increase, we have had the best two consecutive quarters since 2003. Early estimates for the fourth quarter have come in at a lower 2.6%.
Oil – With production rising, demand dropping and the dollar strengthening over the past few years (see below), market forces have pushed oil prices to their lowest level in recent years. Consumers will benefit from more money in their pockets. However, more costly extraction methods, such as fracking and horizontal drilling recently popular in the U.S. may be priced out of operation.
Europe – With weak economic growth and jobs data, the euro zone’s inflation rate is so low that deflation is a serious concern. And with the Swiss National Bank abandoning the euro ceiling on its currency, more uncertainty faces the strength and future of the European Union.
The Dollar – The strength of the US economy has created a rising dollar which will make our products more expensive overseas, but will reduce import prices. This should benefit the world economy at a crucial time. And it may help keep US inflation and interest rates lower for longer than expected.
How will commercial real estate be affected? A stronger dollar could reduce foreign investment in US real estate by making it more expensive for foreign investors. But with a healthy, expanding economy, any decrease in foreign investment should be insignificant and be offset or surpassed by local investments.
If imports increase, the warehouse sector could benefit as more storage space would be needed for those imports. With oil prices down, Americans will have more money in their pockets to spend on consumer goods, boosting the retail market. Healthcare and assisted living continue to grow as baby boomers age, continuing to fuel those sectors. Overall, with the stock market becoming more volatile and interest rates remaining near record lows, commercial real estate may be positioned for stronger returns for investors.
The Phoenix market continues to recover and expand in each of the major sectors below and should continue to benefit from a stronger U.S economy.
Phoenix Office
The Phoenix office market has continued steadily improving. There appears to be a lot of positive sentiment in the office sector from investors so 2015 could be the breakout year. One very noticeable sign for the office market is the Construction Starts chart below, showing a 300% increase in 2014!
Construction Starts
Phoenix Industrial Warehouse
The industrial warehouse market has been very active in Phoenix and continues be a strong sector here and nationally. New product has continued to be added and absorbed in the market, a sign of a healthy expanding cycle.
Construction Deliveries
Phoenix Retail
Retail sales show a strong increase in price per square foot and total sales dollars. Vacancies have gone below 10% for the first time since 2008. Construction starts remain historically low, which is keeping supply in check as this sector continues to recover and reinvent itself as online sales continues to be a retail revolution that is here to stay.
Construction Starts
There will always be uncertainty, and maybe more as we have become a global economy. And worldwide political or terrorist events can bring about sudden unforeseen changes. But with all of the Good and the Bad, I Believe we will have another year of improvement in the U.S. and in the overall world economy. Go Ahead, Make My Day! – inflation should remain low, interest rates may begin to rise slightly but employment and GDP should continue to grow.
In the past four years, we have completed over 5,000 transactions at CPI. That is an average of over 120 transactions per month! Valley-wide, no other commercial real estate firm negotiates, prepares, and completes more transactions then CPI. For a no obligation analysis of your property, please call me at (480) 522-2799 to “TrboCharge” your investment real estate today.