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Investment outlook

Think U.S. cities Q3 2019 outlook

Melissa Reagen
Head of Research, Americas, Nuveen Real Estate
Think Euro

The U.S. economy grew by 3.2% during Q1 2019, generating continued demand for real estate. Trade, consumer spending and an accommodative Federal Reserve drove growth in the first quarter, overcoming the negative effects of the government shutdown. We expect the U.S. economy to grow between 2.0% and 2.5% in 2019, but we are closely monitoring the escalating trade war, which could hinder economic growth. During the May 2019 Federal Open Market Committee meeting, the Federal Reserve kept the federal funds rate steady because inflation is running below their 2% per annum target. The federal fund futures market is pricing in a 73% chance that the FOMC will cut rates by the end of 2019. While this economic cycle is one of the longest on record, the consensus puts the likelihood of a recession this year at a modest 25%.1

Given this backdrop, we expect the U.S. real estate cycle to last at least another year if not longer, provided economic growth continues.

Economic and trade policy uncertainty in the U.S. will continue to define the pace of economic expansion of its second largest trade partner, Canada.1 Canada’s economy is expected to grow below the trend. The Canadian housing market should continue to strengthen due to restrained rate hikes, record-low unemployment rate and strengthening consumer sentiment.


U.S. real estate prices rose 2% in the 12 months ending March 31 2019, a modest increase relative to the past several years.2 We expect NOI growth to generate the majority of U.S. real estate total returns in 2019. The NFI-ODCE saw a total return of 6.55% net of fees for this same time period, with NOI growth accounting for 3.94%.3

 

Weather chart - economic health 

 

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1 Bloomberg, Q1 2019
2 Green Street Advisors, Q1 2019
3 NCREIF, Q1 2019

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