A Terrific Two Percent: The Evolution of government policy, productivity growth, and real estate demand (Abstract Only)

Spring 2017

Our 2017 commercial real estate outlook remains largely unchanged from January. We continue to expect net operating income (NOI) growth in a range of 2 – 3% with values likely to remain relatively stable. Recent developments in Washington, however, have led us to re-evaluate the pace at which events tied to demand growth may unfold. The slow progress on the passage of the American Health Care Act (AHCA) has led some to question the ability of government leaders to enact their ambitious policy agenda. We believe these concerns are somewhat misplaced, as while the government has lost some political capital it has not lost any authority. The most likely outcome is that the majority of the administration’s agenda is enacted, perhaps in a somewhat moderated form, over an elongated period stretching into 2018. The likelihood of exceeding our initial 2017 gross domestic product (GDP) forecast of 2.5% is therefore diminished, but the prospect of strong real estate demand growth is not. The current cycle has consistently shown that periods of 2.0 – 2.5% GDP growth are capable of producing strong demand across property types. We therefore continue to forecast another year of solid performance in U.S. real estate.

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