GlobeSt.com Readers Fear Double-Dip Recession

NEW YORK CITY-GlobeSt.com’s poll this past week revealed readers’ pessimism and uncertainty on the US’ economic outlook. We asked, “Are we closer to a double-dip than we were last year?” Of 375 responses, 48% said, “Yep. This time, it’s real.” Another 34% said nobody knows what will happen. Analysts from Grubb & Ellis and CB Richard Ellis agreed that current growth is suboptimal, but they offered more optimistic predictions on the chances of recession.

One indicator suggests attitudes in the broader population are improving. Though July’s Consumer Confidence Survey, released yesterday, showed a 0.9% decrease in confidence for the present situation, it also showed a 3.8% increase in future expectations. “Consumers, in terms of their outlook, seem to be becoming much more optimistic,” says Asieh Mansour, head of Americas research at CBRE. Though our respondents’ overwhelming pessimism surprised Robert Bach, SVP, chief economist at Grubb & Ellis, he says the individual investors he meets are still hurting from the first recession. “They’re pretty much aware that officially it ended a couple of years ago, but a lot of people think it never really ended,” he says.

Bach blames “sluggish” markets in labor and housing. “That puts consumers in households in a bad mood and it causes consumer spending, which accounts for two thirds of economic growth,” to decline, Bach says. “And businesses watch what consumers do carefully when they decide whether to expand or not.” Less spending by consumers and businesses in turn sustains slow economic growth, says Raymond Torto, CBRE’s global chief economist. Despite such cautious behavior, Mansour says de-leveraging and a lack of excesses in inventories and inflation indicate that another recession is unlikely.

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Trends in the general economy do not necessarily correlate with those in real estate. Stagnant employment growth in the second quarter of 2011 did not prevent improvement in the leasing market for both office and industrial properties, Bach says, adding that investment in secondary markets and class B properties increased. “It’s almost like commercial real estate is on a slightly different cycle now,” he says. “Things really look better in commercial real estate than they do in the economy overall.”

Still, Mansour predicts a prolonged recovery for demand-side fundamentals, sustaining high vacancy rates and empowering tenants. She also says national outlooks mask select regional markets that are thriving. “Certain regions, like the Washington, DC market, are on fire,” she says.

Slow growth rates--US GDP expanded just 1.8% in the first half of 2011--could render the economy more vulnerable to the effect of a deficit crisis, either at home or in Europe. “When you’re growing at that pace there is a higher probability of falling into another recession in the event of an exogenous shock,” Mansour says. Still, Mansour predicts economic strength in other areas would shield the US from sliding into a recession. Though he predicts that Greece will ultimately default, hurting US exports, Torto says the US real estate market may benefit from Europe’s troubles. “Uncertainty over there is leading a lot of global investors to look more favorably on real estate investments in the United States.”