Surging Economy Likely to Carry into 2015; Positive Prospects for Commercial Real Estate

December 30, 2014

  • The U.S. economy is expanding at the fastest pace since 2003, providing ample evidence that GDP growth will be on solid footing as 2015 begins. Equity markets are hovering near all-time highs, unemployment is below 6 percent and falling, and job gains have been impressive — all reflective of strong economic momentum. Consumers echoed the good feelings as confidence reached an eight-year high in December. In addition, with foreclosures from the housing crisis beginning to fall off credit reports, home values have begun a solid recovery. This convergence of positive trends will cause the Federal Reserve to deeply consider its interest rate strategies. The headwinds still confronting growth include the sizable divergence between the health of the U.S. economy and that of many of its trading partners, and risks spawned by the rapid plunge in oil prices. Nonetheless, GDP growth should exceed 3 percent in 2015 and could surprise to the upside, depending on Fed policies in the coming months.


  • GDP growth was 5 percent in the third quarter, the highest level achieved in 11 years. An increase in consumer spending drove much of the gain during the period. Consumers contributed 2.2 percentage points of economic expansion as spending focused on healthcare. Businesses also supported the rise in GDP through expenditures on software and structures. The impact of fiscal drag is finally gone, which boosted spending by the government on a year-ago basis for the first time since 2009.
  • Oil prices have fallen 40 percent since the most recent peak last summer, creating a ripple effect throughout the world. In the U.S., commuters are partially redeploying the savings into consumption, which helped drive last quarter’s blistering GDP growth. Elsewhere, Russia is slipping into recession as the toll of low oil and gas prices, soft energy demand from Europe’s stalled economy, and international sanctions is beginning to mount. OPEC is committed to current production levels to keep prices low in an effort to drive smaller producers out of business and devalue America’s fracking industry. Although the implications of lower energy prices have significant geopolitical stakes, the impact on the U.S. economy will be a net positive.

    Impact on Commercial Real Estate

  • A booming economy will pay dividends for the national office market this year, tightening vacancy in most markets. Office operations have lagged the overall recovery in commercial real estate, but vacancies will finally descend below the 15 percent threshold in 2015, lifting rent growth to 4.1 percent.
  • Apartment operations could face hurdles in the next two years due to supply growth and strong economic conditions. Although gridlock on Capitol Hill is anticipated, both parties will likely work to remove hurdles for first-time homebuyers as significant construction comes online. When the housing market begins to siphon demand away from apartments, vacancies will edge 10 basis points higher in 2015 to 4.8 percent.

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The information contained herein was obtained from sources deemed reliable. Every effort was made to obtain complete and accurate information; however, no representation, warranty or guarantee to the accuracy, express or implied, is made.

One Comment

  1. David Frack
    Posted December 31, 2014 at 4:04 am | Permalink | Reply

    Thank You. Happy New Year!

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