San Francisco – Moderate AND choppy is how noted economist Ken Rosen described the U.S. economic recovery to a group of senior commercial real estate advisors here last week. Rosen, chairman of Rosen Consulting Group, chairman of the Fisher Center for Real Estate and Urban Economics and professor emeritus of the University of California’s Haas School of Business, said despite private sector job growth, low interest rates, continued quantitative easing and improvement in the housing market, the road to recovery is anything but easy. He made his remarks at the annual convention of The Counselors of Real Estate professional association, at the Ritz-Carlton Hotel.
He pointed to politics hampering the recovery, as evidenced by the recent partial shutdown of the federal government and the “potential debt default down the road.” Other factors he cited were interest rate normalization, probably over the next three years, slowdown in the emerging foreign markets, a possible credit and asset bubble, potential tax increase, and unstable geopolitical events in a number of countries. “All that adds up to a moderate AND choppy recovery,” he said.
Rosen elaborated on the jobs market, noting that the U.S. has not yet made up the number of jobs lost in the “great recession.” He said if the government cuts federal jobs, it will have a serious impact on job growth numbers and the economy. He noted, “We still have record numbers of job openings, but we are continuing to not fill them with available workers.” And while he predicts unemployment dropping to 6.5% in 2014, he pointed to the disparity in current numbers of workers – 3.5% unemployment for job seekers who hold at least a bachelor’s degree but an 11.3% jobless rate for job seekers who do not have a college degree. A bright spot, he said, is the energy sector, where some cities are bouncing back due to energy-related job growth that is also fueling energy independence for the U.S.
He noted other factors that point to challenges in the real estate sector. “There is a 20% reduction in office space per employee, largely due to technology,” he said. “The result is excess space in the market.” He also said that while the rental market has peaked, there is a slowing of retail vacancy rates, and overall internet retail sales continue to rise, which is not only a boon to the retail sector but to the economy when related service industries are considered.
The audience of high level real estate advisors pressed Rosen for predictions on many economic points. “The future of suburban real estate is unclear,” he said, noting trends such as the resurgence of urban living among “Gen Y” young professionals and the shift to seniors housing that is expected as large numbers of “Baby Boomers” age. “We’ll have to adopt a wait and see attitude [to see if these are permanent shifts],” he said, “and it is likely some suburbs will suffer in the interim.”
Additionally, he said he is optimistic about second and third tier cities, as growth is being reported in many smaller markets. When asked if he foresees any financial “bubbles,” he pointed to student loans, furthering his prognosis for a “choppy” economic recovery.
The Counselors of Real Estate
The Counselors of Real Estate, established in 1953, is an international group of high profile professionals including members of prominent real estate, financial, legal and accounting firms as well as leaders of government and academia who provide expert, objective advice on complex real property situations and land-related matters. Membership is selective, extended by invitation only. The organization’s CRE® (Counselor of Real Estate) credential is granted to all members in recognition of superior problem solving ability in various areas of real estate counseling. Only 1,100 people in the world hold the CRE credential. For more information, contact The Counselors of Real Estate, 430 N. Michigan Avenue, Chicago, IL 60611; 312/329.8427;