BK Perspective Real Estate USA 2016

Perspective on Real Estate 2016 - U.S.
revision – including GDP, employment, the housing
market, demographics and consumer spending over
meaningful periods of time.
Our analysis concludes that the U.S. economy is
fundamentally healthy, with many strong underlying
trends. Further, the dramatic pace of technological
innovation and adoption by both firms and consumers
bodes well for the future. This is particularly true in
the hubs giving birth to much of this innovation, with
well-educated populations supporting new ideas and
business formations.
Locations such as Boston, Austin, Seattle, the Bay
Area, and parts of New York and Chicago, among
others, are benefiting from concentrations of
employment in education, healthcare and technology.
Supported by world class institutions and leading
companies in these fields, these markets are
positioned for long-term growth. These locations
draw employers seeking access to high caliber
talent, and workers wanting to live among their
peers in proximity to employment opportunities.
This is creating a reciprocal growth cycle that is
perpetuating an expansion we believe still has some
room to run.
The 1980s and 1990s employment cycles each
lasted about 24 months longer than the present
cycle. Further, each of those came to an end when
employment expanded by about 20% above its
prerecession peak. Despite healthy growth of near
2.0%, or almost 2.7 million jobs, over the past year,
the U.S. is only about 3.5% above its January 2008
employment peak. Well-paying jobs in healthcare and
professional and business services (which includes
the vast majority of technology jobs), are growing
at an annual rate north of 3.0% per year, spurring
growth in ancillary services, leisure and hospitality
and retail trade. Even the long-struggling financial
activities sector has exhibited some momentum of
late, although layoff announcements continue to
periodically crop up.
Job openings foreshadow additional hiring and
wage growth, which has, contrary to widely held
views, significantly outpaced inflation in many of
the stronger metropolitan economies across the
U.S. Consumers have deleveraged, fuel costs have
plummeted, the personal savings rate has trended
up, access to credit is improving and unemployment
is falling. Housing market trends are positive.
Barring significant deterioration abroad, or perhaps
a protracted period of deep losses in the stock
market that stifles consumer confidence, the U.S. is
positioned for another year of solid economic growth
in 2016.
“The percentage of U.S.
population that is foreign
born has reached levels not
seen since the 1920s.”
Demographics remain a driver we feel has been
undervalued in its transformative impact on the
economy and its potential to propel a more
extended cycle of expansion. The Baby Boom
generation remains highly influential as its members
approach retirement. Interestingly, we see that
older households have had a very prominent role in
the surge in rental housing demand following the
recession.
Millennials, many of whom have yet to reach an age
where they would form new households and many
others who have delayed striking out on their own
due to economic conditions, have been an important,
but not dominant piece of the demand story. This
generation should remain an impactful demand
driver in 2016 and the years that follow, as age and
improved economic prospects encourage them to
form new households.
Immigration was a political lighting rod in 2015, and
the percentage of U.S. population that is foreign
born has reached levels not seen since the 1920s.
Illegal immigration is a meaningful piece of this, but
6 | Bentall Kennedy (U.S.) Limited Partnership