Zell, Linneman: Economic Recovery Could Hit Some Bumps

CHICAGO—The US economy has been in a slow but steady recovery for several years now, but yesterday about 600 real estate decision makers from overseas and across the nation gathered at the annual NAI Global Market Outlook in Chicago to mull over what obstacles or bumps in the road may be up ahead.

Jay Olshonsky, president of NAI Global, began the morning by introducing Dr. Peter Linneman, chief economist of NAI Global, and Sam Zell, chairman of Equity Group Investments, and asked them to tackle the question.

So far, the current recovery “is a little longer than the average post World War Two recovery,” Linneman said. However, even though that could suggest we were near the end of the upturn, other factors make it difficult to make such a quick judgment. Consumer confidence, for example, rose to an above average level only about three months ago and historically this phase lasts about three years.

Zell replied that although he did not want to sound too pessimistic, “it's important not to get too kumbaya. Unless we get back on the growth track” the US could fall into a trap just like Japan did in the 1990s. “Almost every office renewal in the country has been for less space,” and when it comes to retail, big malls and smaller local strip malls may have done very well, but “almost everything in the middle can best be described as obsolete.”

Both men consider the international scene quite unsettled, and left open the possibility that one or several crises outside the US could hinder the recovery. Linneman was confident that any waves emanating from a Greek collapse would not have much impact due to the small size of the Greek economy. Zell did not disagree, but pointed to other festering problems with the Islamic State, the Russian-Ukrainian conflict and North Korea, among others. “We don't know what will be a tipping point.” In fact, when it comes to geopolitics, he does not “remember when there were so many potential black swans.”

Still, “it's been remarkable how the US economy has shaken off Ukraine,” Linneman said. “It's quite remarkable how everything has been shaken off.”

Tomorrow, we will look at what Zell, Linneman and Olshonsky had to say about whether technology firms will provide the amount of demand needed by US office markets, whether its better to be a buyer or seller these days, and what the true impact high-profile foreign investments have on the market.