Industry Power Panel: Read What Commercial Real Estate Leaders and Insiders Told the Institute's President about the Economic and Property Management Outlook for 2005 in a Wide-Ranging Roundtable Discussion

Journal of Property Management, January-February 2005 | Go to article overview

Industry Power Panel: Read What Commercial Real Estate Leaders and Insiders Told the Institute's President about the Economic and Property Management Outlook for 2005 in a Wide-Ranging Roundtable Discussion


Tony Smith, CPM: We've referred to this group as an industry "Power Panel," and I figure there's over 150 years of collective experience with a diverse group of participants, companies, roles and product types. I really look forward to your insights regarding the economy, the real estate markets and related issues.

[ILLUSTRATION OMITTED]

To start, let's discuss the overall economic outlook for commercial real estate in 2005. Ray, I was hoping you could kick us off with your thoughts.

The Economy

Raymond Torto: We're basically advising clients that we still see the economy in fairly good shape and recovery is continuing apace. We also advise that it's a measured recovery, using the words of Fed Chairman Allen Greenspan. The release of the final GDP numbers for the third quarter with four-percent growth reflected a good economy from the usual types of GDP measures--productivity, income, exports, consumer spending. As we all know, for real estate what we're concerned about primarily is jobs and on that number we're still below the peak back in 2000. So, we particularly are affected by a very slow recovery. That said, it's still a recovery, and it is getting better. I think all property types are improving.

[ILLUSTRATION OMITTED]

Maria Sicola: I'm in agreement with much of what Ray has said. We see the growth is slow and steady, at this point nothing dramatic, but if it continues we'll see vacancies in office and industrial property continue to decline gradually by the end of 2005 in some markets. We're seeing it in a few already. Rent is beginning to rise.

[ILLUSTRATION OMITTED]

[ILLUSTRATION OMITTED]

Christopher Lee: I have a little bit different perspective. I think the recovery has already occurred and 2004 is going to end up being the best year of this decade in terms of real GDP growth. I think we will see a slow-down in 2005 and as you look at the horizon for years forward, you will see pressures being put on the economy my based on the extraordinary amount of rising consumer debt, which right now is at $9.1 trillion. There are huge issues: fluctuating consumer confidence, reducing the deficit and controlling healthcare costs. I think you will see changes in the way things occur economically. We will have good growth, but not at the levels we experienced in 2004.

Torto: What you're talking about, Chris, is seeing a risk on the consumer having a large debt. This has been an argument that's been around for a long period of time. We just don't see the consumer pulling back given an economy that is growing positively.

[ILLUSTRATION OMITTED]

Dale Ann Reiss: One of the things I think is very important is the fact Bush was reelected. I think it means the odds of a confiscatory tax bill passing almost got eliminated. As a result, there will be more dollars in people's pockets available to spend, and when there's consumer spending there's always a need for industrial and warehouse facilities to move product around.

[ILLUSTRATION OMITTED]

Lee: Just don't discount the aging Baby Boomer group. I think the important message here is that if people think we are going to have north of four-percent GDP growth next year and it's going to rise to higher levels in the theoretical recovery, we're misstating what actually will occur. I think 3.8 or 3.5 percent GDP growth is still a very good growth rate. I just want to caution that fundamental changes are occurring and you have to look at all the demographics and the patterns to really reflect on what's going to happen over the balance of this decade.

[ILLUSTRATION OMITTED]

Torto: I don't necessarily want to disagree with you on that point. The issue I would worry about and focus on is that treasury rates won't rise much beyond six percent by the end of next year. It's 4.3 percent this morning, but most people are talking about it being in the five- or six-percent range next year. …

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