Cushman & Wakefield's Kevin Thorpe It’s “nothing new” to begin the year with economic headwinds, Thorpe says.

NEW YORK CITY—Don’t worry about the US economy in 2016—it’s the equity markets that need to pick themselves up and dust themselves off. Cushman & Wakefield’s US Macro Forecast, released Monday afternoon, is calling for positive economic results for this year despite stock market jitters in the early innings.

“Economic turbulence at the start of a new year is nothing new,” says Kevin Thorpe, C&W’s chief economist. “We have seen it come and go for the past several years without any long-lasting damage to the health of the broader economy.” In fact, the Macro Forecast notes that there have been 39 bear markets since 1950, and only 10 recessions, and notes that while it’s possible that a prolonged bear market could tip the economy over into recession, it’s not probable.

“Typically, the volatility drives capital flows back to the US with a refocus on core assets, and that is happening again,” Thorpe says. “The key indicators to watch right now are consumer confidence and the labor markets. Those are both telling us that the core of the US economy and the property markets are still in reasonably good shape.”

Much of the concern sending jitters through the equity markets stems from global events, in particular signs of weakness in the Chinese economy. “The macroeconomic consequences of a hard landing in China—and how that would impact the US economy—tend to be overstated,” according to the C&W report, which notes that China’s GDP growth could fall below 3% without causing a US recession. “Our current

assumption is that China’s economy will continue to decelerate while it structurally rebalances, and while it will continue to create choppiness in the marketplace, no hard landing is imminent.”

Notwithstanding demographic shifts that are putting downward pressure on the labor participation rate, the 2.4% forecast for domestic GDP growth is “quite healthy,” C&W says. This level of GDP, coupled with the current pace of job growth, is consistent with the robust level of demand for office and industrial space observed in 2015—and actually stronger than pre-crisis levels, according to the Macro Forecast.

On  a sector-by-sector basis, office is expected to enjoy an especially bright future in the near term. C&W predicts net absorption in the range of 75 million to 85 million square feet annually over the next two years. And while demand will ease towards the end of the forecast period, new development will continue to lag. As a result, vacancy rates will decline from 14.2% last year to 13% by 2017, while office rent growth will rise to 4.5% by the end of next year.

For industrial, C&W expects “a mix of headwinds and tailwinds,” yet the sector’s overall outlook remains generally upbeat. The headwinds arise from declines in manufacturing activity related to a stronger US dollar and weaker global demand. Nonetheless, C&W sees overall vacancy tightening further, falling from 7.5% in ‘15 to 7% by the end of this year. “This is on par with the tightest conditions ever observed in the sector; in 2000, the national vacancy rate was 6.9%,” the Macro Forecast states

C&W sees demand in the retail sector continuing to focus on class A product as well as new space. Vacancy will decline to 7% by year’s end, and annual rental growth will average 2% 3% over the next two years. between 2016 and 2017.

On the investment front, C&W says the US will continue to be perceived as a safe haven and will remain “the top investment market for those seeking both stability and expected returns. Strong fundamentals in the US will continue to fuel both domestic and foreign investor appetite,” which increasingly is encompassing industrial and retail properties along with the mainstays of multifamily and office.