All signs point to a bright future for the commercial real estate industry, according to Marcus & Millichap’s president and CEO Hessam Nadji, who gave an economic address at the CREW Network Convention in San Diego Oct. 18.
Nadji said compared to 2007, the economic outlook is strong for our industry. Our population has increased by 25.4 million, with 10.4 million more households and 11.2 million more jobs ow. The unemployment rate has declined 130 basis points to 3.7 percent, there are 2.8 million more job openings now, and GDP growth is $5.7 trillion.
The future for senior-related business also looks healthy, with 10,000 baby boomers turning 65 every day, and with 12,000 millennials turning 21 every day, that demographic is gaining more prominence in the workforce and as consumers, Nadji indicated. It’s true that nine million jobs were lost during the Great Recession, but we have added 20 million jobs since then.
Nadji also said the real effects of tax reform haven’t even shown up yet, however there are some potential risks ahead. The U.S. has more job openings than people seeking work, which can cause inflation. The long-term yield is heading toward inversion, but Fed adjustments are working — they just need more time.
It is unlikely there will be a recession in the next two years, but when the next recession does eventually come, it will not be as severe as 2008/2009, Nadji proclaimed. And, the U.S. is still a major exporter, with 12 million jobs depending on exports and exports’ contribution to the GDP growing.
The expansion is long, he said, but it’s not the longest expansion we’ve ever had, and growth has been gradual, which is why risk is minimized. Also, tax reform is helping to keep the economy healthy.
Banking-system and consumer-spending fundamentals are great, and there is a significant amount of power in the U.S. consumer, Nadji said. While residential-housing construction hasn’t come back since the recession, this is because more consumers prefer to rent than buy.
Importantly, the CRE industry is not overbuilt; there are pockets of overbuilding, but we are not overleveraged as an industry, an advantage we have never had before, Nadji said. In fact, it’s remarkable that we’re doing so well so far into the expansion. He said CRE is continuing to attract global capital, and yields are higher than the bond market. Real estate has become a mainstream investment that is underallocated for many investors.
Marcus & Millichap’s job is to educate the marketplace on the advantages of investing in CRE, Nadji said. The industry has seen 54,700 trades in the last 12 months, 83 percent under $10 million.
The 10-year forecast is that there will be 16.2 million 55-plus-year-olds in a decade, and the millennials will level out, while the 35-to-55-year-old cohort will level out and then grow, Nadji predicted. The largest transfer of wealth, he said, will be from baby boomers to their children: $30-plus trillion.
Some of the trends Nadji foresees affecting CRE, he said, are technology, automation, analytics, internal workflow, societal waves, and technology/data overload; specialization taken to an extreme due to client sophistication and soaring expectations; integration of specialized units into a seamless client delivery system, such that skill sets and expertise will be forced to keep up; increased capital flows into CRE; and increased competition for talent.