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Investment outlook

Think U.S. cities Q4 2019 outlook

Melissa Reagen
Head of Research, Americas, Nuveen Real Estate
U.S. Cities Q4 2019

The U.S. economy is entering its 11th year of expansion, the longest since 1854. During Q2 2019, the U.S. economy grew at an annualized rate of 2.1% and is on track to grow around 1.8% in Q3 2019.1 Strong employment and solid household income growth should support consumer spending during the next two quarters of 2019. We expect the U.S. economy to grow between 2.0% and 2.5% in 2019.

During the July 2019 Federal Open Market Committee (FOMC) meeting, the Federal Reserve lowered the target range for federal funds rate to 2.0 – 2.25%. Should the U.S. economy enter a recession, the Federal Reserve will have little room to cut the federal funds rate significantly. The federal fund futures market is pricing in a 95.8% chance that the FOMC will continue to cut rates by the end of 2019, the consensus likelihood of a recession this year remains at 31%.2

In our view, the key risks to U.S. economic growth and, by extension the U.S. real estate market, are the U.S-China trade war and slowing global economic growth. To-date the trade war has minimally affected U.S. economic growth but an increase in the amount of tariffs would hurt U.S. consumer spending and would hurt businesses that rely on trade and global supply chains to generate revenue.

U.S. real estate prices rose 1.8% in the 12 months ending July 2019, a modest increase relative to the past several years.3 The NFI-ODCE saw a total return of 5.46% net of fees for the year ending Q2 2019. NOI grew 4.8% during this time period.4 Given the maturity of this real estate cycle, we expect NOI growth to generate the majority of U.S. real estate total returns in 2019. 

 

 
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1U.S. Bureau of Economic Analysis
2CME FedWatch Tool, August 2019
3Green Street Advisors, Q2 2019
4NCREIF, Q2 2019

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This material may contain “forward-looking” information that is not purely historical in nature. Such information may include projections, forecasts, estimates of yields or returns, and proposed or expected portfolio composition. Moreover, certain historical performance information of other investment vehicles or composite accounts managed by Nuveen may be included in this material and such performance information is presented by way of example only. No representation is made that the performance presented will be achieved, or that every assumption made in achieving, calculating or presenting either the forward-looking information or the historical performance information herein has been considered or stated in preparing this material. Any changes to assumptions that may have been made in preparing this material could have a material impact on the investment returns that are presented herein by way of example.

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This information does not constitute investment research as defined under MiFID. 
 

A word on risk
Real estate investments are subject to various risks, including fluctuations in property values, higher expenses or lower income than expected, currency movement risks and potential environmental problems and liability. Please consider all risks carefully prior to investing in any particular strategy. 

The views and opinions expressed are for informational and educational purposes only as of the date of production/writing and may change without notice at any time based on factors such as market conditions or legal and regulatory developments. All information has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. This material may contain “forward-looking” information that is not purely historical in nature. Such information may include, among other things, projections, forecasts, estimates of market returns, and proposed or expected portfolio composition. Any changes to assumptions made in preparing this material could have a material impact on the information presented herein. Past performance is no guarantee of future results. Investing involves risk; principal loss is possible.


Nuveen Real Estate is a name under which Nuveen Real Estate Management Limited provides investment products and services. Nuveen Real Estate is a real estate investment management holding company owned by Teachers Insurance and Annuity Association of America (TIAA).Nuveen Real Estate securities products distributed in North America are advised by U.K. regulated subsidiaries or Nuveen Alternatives Advisors, LLC, a registered investment advisor and wholly owned subsidiary of TIAA, and distributed by Nuveen Securities, LLC, member FINRA.