Commercial Real Estate Outlook: 2014.Q4

November 2014 Commercial Real Estate Outlook
Economic Overview: Commercial Demand Gets Boost from Economic Momentum in Q3
Amid worries of a global economic slackening, U.S. gross domestic product(GDP) increased at an annual rate of 3.6percent during the third quarter 2014. The pace of growth exceeded economists’ expectations, and it provided forward momentum to commercial real estate markets.
Gains in international trade along with positive government spending were the main engines of growth for third quarterGDP. After a double-digit annual rate ofgrowth in the second quarter, U.S. exportsrose at a 7.8 percent rate in the thirdquarter. Export sector growth was boostedby U.S. goods leaving for foreign shores ata pace which was 11.0 percent higher.Meanwhile, imports of goods and services declined at a 1.7 percent rate over the period, due mainly to a drop in imported goods.
Government spending which has acted asa drag on GDP growth over the past few years rose at a 4.6 percent annual rate during the third quarter. The increase came from federal spending, specifically national defense consumption, which advanced at a15.9 percent rate during the quarter.Government spending at the state and local levels was also positive 1.3 percent higher on an annual basis.
Consumer spending the largest GDP component also rose, but at a more modest 1.8 percent annual rate. Consumers spent more on both goods andservices, by 3.1 percent and 1.1 percent annual rate, respectively.
Consumers purchased more cars, furniture and household appliances, recreational vehicles, as well as clothing and shoes. The quarter also bode well for transportation providers, along with financial services and insurance companies, which experienced higher sales.
Business spending increased at a 5.5 percent annual rate, driven by spending on equipment upgrades. Spending on industrial equipment increased 24.9 percent,while investments in transportation equipment rose 30.2 percent in the third quarter. Commercial construction continued, with investments in commercial structures rising 3.7 percent. Business investments in intellectual property products software, R&D, entertainment,literary works increased at a 4.2 percent annual rate.
The economic picture was positive across most major indices. Manufacturers’ new orders rose at an annual rate of 15.9 percent in the third quarter, on the strength of transportation equipment orders, especially large orders of non-defense aircraft in July. Manufacturer’s shipments increased at a 4.8 percent annual rate during the quarter, taking pressure of inventories, which increased at 1.4 percent, the slowest advance of the year so far. The Institute for Supply Management’s Composite Index of manufacturing and non-manufacturing activity rose at a 23.3 percent annual rate, reaching a value of58.8 in the third quarter (values above 50 denote increasing activity).