While U.S. economic growth fared surprisingly well in the third quarter, real estate investment took a big hit. According to advance estimates from the Bureau of Economic Analysis (BEA) released this week, the country’s GDP rose at an annualized rate of 2.6 percent, a turnaround from the previous quarter when GDP dropped by an annualized rate of 0.6 percent. Meanwhile, investment in non-residential structures fell 15.3 percent compared to the previous quarter and investment in residential structures dropped 26.4 percent. The BEA report attributed the decrease in residential investment to fewer new homes being built.
With these latest figures, and other factors like interest rates at a 20-year high, a major drop in residential mortgage applications, and sliding home sales, many economists believe that residential real estate is in a recessionary period. The overall GDP number is important for the commercial real estate industry to take note of because it signals the direction of the U.S. economy, the University of Arkansas’s Mervin Jebaraj told Bisnow. “Private investment and inventories will give an indication of the direction of demand for office space and warehouses while consumer spending numbers will provide some indication for the direction of near-term lease rates and vacancies for retail space,” Jebaraj said.
The real estate industry is eyeing markets closely, as many experts expect a recession sometime in 2023. While the new figures from BEA are an important indicator, the most pressing issue for commercial real estate at the moment is rising interest rates. CBRE said in its latest earnings report this week that it will be making layoffs as part of a $400 million cost-cutting plan. The firm reported a major drop in property sales and loan originations after Labor Day, which led to a 43 percent drop in its Americas Capital Markets revenue in September. As more major real estate players prepare to release their third quarter earnings reports, the results could give more insight into just how much the industry has been impacted by the current economic climate.