Imagine the power of knowing the future—seeing potential opportunities or planning for economic downturns. I recently attended an economic update by Brian Beaulieu, an economist who focuses on macro-market trends stretching 10+ years into the future to hear his insights on what lies ahead. Hosted by Urban Land Institute (ULI) of Minnesota, his presentation was titled “A Bend in the Road,” referring to his prediction that there is an expected market correction beginning late 2018 but then followed by another long-term expansion period.
With 35 years of experience, Brian Beaulieu is an economist and CEO of ITR Economics as well as the Chief Economist for TEC, a global organization comprised of 13,000 CEO’s. Brian’s focus is on general business cycle trends and analysis, with an eye on making future projections. Commercial Real Estate (CRE) is a lagging indicator of other aspects of the economy, so his projections could give insight into identifying the relative strengths, opportunities or pitfalls in the CRE market in coming years.
Below, I have shared what I believe are the five most impactful pieces of his presentation as they relate to the CRE market.
Interest rates will remain low enough to not significantly impact the commercial markets for several years. There is still some compression left in the rates themselves before banks will have to start increasing rates. Even when rates do start rising, all indication is that it will be a slow rise, so no real impact in the short or intermediate terms.
The largest challenge in the local economy is the labor market. Minneapolis/ St Paul has hit sub-3% unemployment, meaning that we are below what is generally referred to as full employment. The shortage of workers has reached the point of affecting growth. If more employees are not added to the local economy, then the region will see a negative impact. Without new workers migrating here, local companies could be forced to look at other regions.
The US Personal Savings Rate is a good leading indicator for retail sales. As savings rates rise, so does retail spending, as it’s an indicator of additional disposable income. The savings rate currently leads the sales curve by over a year. The Personal Savings Rate is starting to drop, which is one factor of Beaulieu’s call for a slowdown in retail sales in late 2019. The total retail market is projected to stay stable or even grow, just at a lower year over year rate than currently.
Another economic output indicator is US Nondefense New Orders to US Manufacturing. The rates of new starts are flattening this year, which is leading to a forecasted slowdown in total manufacturing output next year. While a slowdown of manufacturing does not automatically tie into a negative industrial market, it does show one aspect of the market is projecting to expand slower than at the current rate.
The long-term prediction shows a potentially significant downturn in the 2030-2040 range. The prediction is based on the global trend of rising national debt as well as demographics. The basis is that as the baby boomer generation enters late stages of life, there will simply not be enough working-age population to financially hold the economy in its current state. The demographic wave will affect many European and North American economies, but also includes China, who will feel the impact of an imbalanced age distribution made in part by the one-child policy.
While no outlook is perfect, these data-based models can prime you for some forward thinking and planning. There seems to be a rising uneasy feeling that this expansion period is lasting too long and that the cycle could be ending. Multiple data points are needed to make that decision, including national economic data as well as local market intelligence.
Tracking economic shifts, analyzing data and interpreting trends is an important piece of our client advisory services at Colliers International | Minneapolis-St. Paul. Please feel free to reach out to our research department with any questions.
You can find Brian Beaulieu’s slides from his ULI Minnesota presentation here for more information on the supporting data.
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Senior Research Analyst
Colliers International | Minneapolis - St. Paul
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