‘Next recession won’t be nasty,’ economist says to worried realtors

DENVER — Builders and developers are all asking how much more time is on the clock.

After more than five years of increasing commercial and residential property plays, industry execs have to wonder when the party will be over.

Don’t worry about it, real estate prognosticators say.

“Don’t play scared,” said economist Kevin Thorpe with Cushman & Wakefield. “The odds are still really good the expansion will continue at least the next couple of years.

“The odds are really good the next recession wont be nasty,” Thorpe told real estate journalists meeting in Denver this week.

The economy is enjoying what is shaping up to be the longest expansion since World War II, Thorpe told members of the National Association of Real Estate Editors.

“We are not going into a recession anytime soon,” he said. “Of course there will be another recession at some point.

“The next recession is not likely to be nearly as severe as the one we went through in 2008 and 2009.”

Thorpe does warn developers to keep an eye on new supply.

“Job growth is slowing and therefore there is going to be less demand for real estate space going forward,” he said.

On a global basis, too much office space is being built.

“We are assuming demand for office space will be healthy but it won’t be enough – the world is absolutely overbuilding,” Thorpe said. “The U.S. is generally not overbuilding other than a few spots.

“Certain markets are absolutely overdoing it.”

Thorpe said the industrial building markets across the country are booming things to e commerce growth.

“Industrial vacancy has come down to record lows in many cities,” he said.

Marcel Arsenault with Real Capital Solutions warns builders and investors to keep an eye on the market.

“The pregnant question here today is where are we in the cycle,” Arsenault said. “A recession is coming – our best guess is 2019.

“You can watch and predict overbuilding, just look at the building permits and the new space coming on line.”

Commercial building supplies so far aren’t out of hand in most markets, he said. “I wouldn’t panic if I was in the commercial real estate business.”

The homebuilding market still has shortages, he said.

“The home builders are just coming out of the bunker we are under producing housing,” Arsenault said.

While housing prices have exploded in many markets – including Dallas – industry analysts don’t see another bubble.

“We have seen a tremendous run up in home prices,” said Brad Hunter with HomeAdvisor. “Home prices have been shooting up in most of the markets.

“They are back up to levels they hit at the peak of the bubble,” he said. “That does not mean we are in a bubble today.”

Hunter said demand, not speculation or loose lending has caused the home price expansion.

And there aren’t enough houses to go around.

“The pace of housing starts has risen sharply over the last few years,” Hunter said. “But we are still only at 80 percent of demand.”