Both George Madison University economist Stephen Fuller and Susan Hudson-Wilson, founder and CEO of Property Portfolio Research, offered largely positive takes on the nation’s economic outlook during a panel at the annual conference of the National Association ofand Office Properties (NAIOP) last week. While the substance of their message was upbeat — expect a booming economy in the next two years — a few caveats hedged their optimism. Both Fuller and Hudson-Wilson foresee a very weak apartment market and a continuation of Wal-Mart’s decimation of traditional retailing.
"The national economy is on a rebound, and the next two years will be good years. If you are overbuilt in your sector, however, a lot of slack will come out of that inventory in the next two years as demand continues to accelerate," Fuller said during the conference, held in Boston at the Marriott Copley Place. He cautioned that much of what happens over the next two years depends on how well local governments choose to help promote business under their watch.
"It’s the failure of local leadership and foresight, the failure to look forward and understand what needs to be done now to help avoid the next recession," he said.
Hudson Wilson, who followed Fuller’speech, gave a terse summation of the property markets. She noted that recent corporate earnings suggest that a recovery is on tap. "This is how recoveries happen. They kind of sneak up on you, and then they explode out to you."
Hudson-Wilson said that it is possible that a "very credible upside scenario" is that third-quarter GDP numbers will come in at more than 6%. With labor force growth at about 1% and productivity at 6.8%, Hudson-Wilson said that 7.8% is the capacity where GDP could go on a non-inflationary basis. She also said that the fourth quarter numbers could come in even stronger.
Her optimism extended to the office market as well. "I regard the office market as being very fairly valued, maybe even cheap, and if you can get in the path of the growth we’ve seen you can make some money," she explained.
On the multifamily market, however "all I have is bad things to say," she said. A glut of new supply — and the fact that the number ofpermits for the first half of 2003 are up over the same time period in 2002— are major obstacles for the apartment market, according to Hudson-Wilson. "I talk to bankers and just tell them to ‘stop financing this stuff,’" she said. Another problem is that the largest demographic for apartment rental demand — 18- to 34-year-olds— is waning.
Her take on retail was no less sinister. While briefly touching upon Wal-Mart’s effect on the retail business (which she termed "a science" unto itself), she singled out a few mall anchors such as Macy’s, Foley’s and Robinson’s. "They’re toast. There’s a little icky thing that has to happen. They have to be boosted out of their space and replaced with value retailers," she said. And with Lord & Taylor closing 150 stores nationwide, this "is the tip of the iceberg," says Hudson-Wilson. "They’re going down, but they’re just kidding themselves along the way."