Recovery Keeps Inching Along

NEW YORK CITY-“Sluggish” is the word Cushman & Wakefield uses to describe economic recovery in the US since the recession technically ended in June 2009. However, it is a recovery nonetheless, albeit stronger in other key Americas nations than in the US.

The progress that the US and other Americas markets have made is comparable to that seen in Europe, where forecasts for 2010 overall have been upgraded lately, although there’s an increasing disparity between individual countries. Both regions, though, have been left in the dust by the Asia Pacific countries, according to C&W’s Economic Pulse reports for the three global regions, issued Tuesday.

Here in the US, “The story of the recovery so far, and it’s now about 15 months old, is that it’s better than the past two recoveries but not as strong as one would hope, given the depth of the downturn,” says Ken McCarthy, managing director of US research services, in a podcast discussion of the Americas report. C&W notes that the US began adding jobs earlier this time: about six months after the technical end of the recession, compared to 11 months after the 1990 downturn ended and 19 months from the bottom of the 2001 recession.

However, McCarthy say, the characteristics of this recovery are somewhat different than in the past. “Overall, we’ve been adding about 100,000 private sector jobs per month during 2010,” he says. “While this sounds decent, it’s not very strong. It’s barely enough to reduce the unemployment rate.” If the present rate were maintained, the US would not surpass its pre-recession employment rate until 2016.

This recovery has been led by business, and not by consumers. “Consumers remain constrained by declining home values and they’re much less confident, especially with high unemployment,” says McCarthy.

By contrast, business’ profits and capital spending are both up. “However, in the current uncertain political and regulatory climate, businesses are being cautious,” McCarthy says. Significant addition of jobs probably won’t occur until at least mid-2011. But from that point on, healthier economic growth is in the forecast, with GDP increasing on the order of 5% annually and employers adding about 150,000 to 200,000 jobs per month.

The recovery has also been different for the real estate industry as well, but in a good way. CBD office vacancy appears to have peaked at 15% in the first quarter of this year, while suburban vacancy rates have not yet peaked. That’s a reversal of what happened in the early 1990s and early 2000s, when the suburbs came back first. “The fact that CBD vacancy rates have peaked and begun to decline is remarkable, given the depth of the downturn,” says McCarthy.

Although the US economy lost more jobs than it has since the 1930s, the CBD vacancy rate hit a lower peak than it did in 2001, when it reached 15.5%, or in 1990, when it climbed to 19%. The secret, McCarthy says, is less new construction than in prior downturns, and therefore less oversupply.

Looking at other countries in the Americas, McCarthy notes that Canada experienced a much milder downturn, and that is financial system was much healthier going into the recession. The Canadian economy grew faster in the first half of this year than did the US, and while it has slowed slightly due to the faltering pace in the US, “it remains in decent shape and is likely to continue growing at a healthy pace.”

The slowing of the US economy also exerted a negative influence on Mexico. Yet that country is still expected to grow by about 5% this year and next year as well. This has helped the office vacancy rate, particularly in Mexico City, McCarthy says. In even better shape, Brazil's economy hardly missed a step during the recession and looks to grow by 7% this year and 5% in ’11. The strength is reflected in office rents, with Rio de Janeiro seeing a 60% increase year over year in the third quarter.