Economic growth and tenant demand

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Breslau.Ben_Color_HiResFrom Ben Breslau
Managing Director
Americas Research




In a recent survey by Jones Lang LaSalle Research, 94% of the investor audience questioned expect the underlying economic and tenants demand side to be the same or better next year. 50% said that they expect better conditions. We agree.

JLL sees the US economy as comparably strong from an economic standpoint in the developed world, and emerging markets have had recent struggles too with reform challenges, capital outflows and currency volatility that has weakened growth. We admit that this domestic recovery has been “heavily medicated” by the Fed and is built on something of a monetary and fiscal “house of cards,” but household balance sheets and the housing market have both improved, and the impact of the fiscal drag from tax increases earlier in the year is fading.

Monetary policy remains extraordinarily accommodative. Corporate America is still very profitable and flush with cash. Banks are capitalized and lending (including to real estate). Even in the manufacturing sector, the US is at its most competitive globally in 30 years. Job growth has been steady and even surprised on the upside in the latest October reading.

Despite the global macro risks and the domestic political and fiscal headwinds, the momentum for continued growth into next year is in place. We know that uncertainty will continue, and that we will be facing another budget and debt ceiling debate in early 2014. However, we think that the US economy could accelerate slightly with GDP in the 3% range in 2014. In fact, the private sector is already growing at about this pace.

Even accounting for the offsetting increase in density and mobility of the workforce that is a governor on occupancy growth, that level of economic growth should be enough to fuel continued job creation and modestly increasing net absorption. In the office market nationally we are already at 14 consecutive quarters of positive net absorption and 2 years of modest but positive rent growth.  We think more will come though the road will likely be bumpy along the way.


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