Executive Summary


  • GDP: GDP grew at a better-than-expected annualized rate of 3.5% in Q3, compared with 4.2% in Q2. While Q3 GDP growth was strong, its deceleration from Q2 reflected a downturn in exports and nonresidential fixed investment. Growth was driven by a strong 4% gain in consumer spending and an increase in government spending. Consumer spending comprises more than two-thirds of GDP. Economic growth remains on track for its strongest performance since the global financial crisis.
  • Fed Watch: Given strong employment growth this year, today’s announcement virtually ensures the Fed will maintain its current approach to monetary policy normalization. Nevertheless, a key measure of inflation—the PCE price index (personal consumption expenditure)—came in well below expectations (1.6% vs. 2.2% expected), so inflation worries likely are unfounded and likely won’t drive the Fed past current expectations. We expect another rate increase in December and maintain our forecast that the 10-year Treasury rate is much more likely to remain above 3% by year’s end, absent a black-swan event. The Fed has maintained its stance to reduce its nearly $4 trillion balance sheet. As of today, the 10-year Treasury stands at 3.1%. The 10-year breakeven inflation rate—a measure of markets’ expectation of inflation 10 years from now—is just below 2.1%.
  • Stock Market: A material increase in equity market volatility in the past six weeks culminated this morning with the stock market falling into full correction territory as it did in February. Mixed earnings reports by companies heavily impacted by raw material tariffs and slowing tech-sector growth are leading causes of the disruption. The Fed’s less accommodative stance and silence during this recent bout of volatility has further increased trader fears that they are on their own and can’t expect the Fed to immediately react when the market swoons.
  • Policy: Favorable fiscal policy at federal and state levels continues to support employment and wage growth. Wage growth could induce workers on the sidelines to re-enter the labor market, raising the labor force participation rate. On the other hand, productivity growth remains uneven and low by historical standards. As a result, it is likely that inflation will gently pick up. 

CRE Implications


  • Retail: Consumption growth and a strong labor market augur well for consumer spending and retail sales in quarters ahead. Retail sales continued to show steady growth in Q3.
  • Office: With the economy operating at or near capacity, employers may find it difficult to fill skilled positions from the current workforce. While an increase in labor force participation would help, growth will be limited by an aging population and other demographics. Likewise, fiscal policy may boost the job market, but gains will likely be modest given that the timing coincides with the economy operating almost at full capacity.
  • Industrial: Potential changes in trade policy have thus far been largely rhetorical, which is a positive for industrial real estate. Imports use more warehouse and distribution space than exports do. With rising personal disposable incomes, consumers may spend more on imports in the months ahead.
  • Multifamily: Demand for apartments remains strong, but supply has gotten ahead of demand for Class A units. Rent growth remains positive for Class B/C units, but Class A rent growth has stalled. Solid economic growth should help renters’ pocketbooks and their ability to pay more. Recent tax reform should benefit the multifamily sector further. An increased standard deduction (which reduces or eliminates the benefit of the mortgage-interest write-off for many taxpayers) makes renting more attractive for moderate-income households, and decreased mortgage-interest deductions make renting more attractive for higher-income earners.