CBRE research is reporting the U.S. is not in a recession yet and are predicting that a recession will take hold late this year and early next year.

Executive Summary

• U.S. GDP fell by 0.9% annualized in Q2 vs. consensus expectations of 0.3% growth. The drop was largely driven by decreases in consumer spending on goods and in business and residential investment.
• Although a second consecutive quarter of negative growth following a 1.6% drop in Q1 GDP is an indicator of recession, CBRE does not believe the U.S. economy is currently in one. However, we expect that a recession will take hold late this year and early next.
• The Federal Reserve raised the federal funds rate by 75 basis points (bps) yesterday to a target range of 2.25% to 2.5%.
• Slower economic growth likely will cause the Fed to limit any additional rate hikes this year to no more than 50 bps each. The central bank has three more meetings this year in September, November and December.
• The Fed indicated it will increase the ongoing reduction of its balance sheet to $95 billion from $47.5 billion per month beginning in September.
• CBRE forecasts the federal funds rate will peak at 3.75% next year.
• CBRE expects that more challenging economic conditions later this year and next will weigh on real estate market fundamentals and investment volumes.

Q2 2022 GDP

U.S. GDP fell by 0.9% on an annualized basis in Q2 2022. While this marks the second consecutive quarter of negative GDP growth—a commonly accepted definition of recession—we do not believe that the U.S. economy is currently in recession. This initial Q2 GDP estimate will be revised twice in coming weeks.

Negative growth in Q2 was largely driven by less consumer spending on goods, decreased residential and non-residential investment and a reduction in business inventories. The deceleration in consumer spending growth to just 1.0% in Q2 likely will weigh on demand for retail and industrial properties. The shift in spending from goods to services was amplified in Q2, with goods subtracting 1.08% from GDP and services adding 1.78%. On a positive note, investment in intellectual property (tech) —an important driver of office demand—increased by 9.2% annualized, which is a positive indicator for the hard-hit office sector.

July FOMC Meeting

The Federal Reserve raised interest rates by 75 bps yesterday to a target range of 2.25% to 2.5%. This move continues the central bank’s efforts to cool the labor market and high inflation, which reached a 40-year-high of 9.1% in June.

Additionally, the Fed signaled it will increase the ongoing reduction of its balance sheet—a process known as quantitative tightening—to $95 billion from $47.5 billion per month beginning in September.

CBRE Forecast

As economic growth slows, the Fed will struggle to balance its dual mandate of price stability and full employment. We expect the Fed will continue to favor price stability and take actions to reduce economic activity and job growth. Consequently, we expect the federal funds rate to reach a range of 3.25% to 3.5% by year-end and unemployment to begin to rise.

Rapidly increasing interest rates and subdued economic growth will weigh on commercial real estate fundamentals and investment volumes this year and next. Segments of the multifamily, hotel and retail sectors that rely on budget-conscious consumers will be particularly affected.

Figure 1: CBRE House View*

TUCSON, ARIZONA — Dean Cotlow of Cotlow Development III, LLC sold the office building at 3709 North Campbell Avenue in Tucson for $1.5 million ($234 PSF).

Located northwest of Prince Road and Campbell Avenue, the 6,403 square foot, two-story building was built in 2004 on .6 of an acre.  Cotlow had occupied the building for Cotlow & Company until constructing a new office at Kleindale and Alvernon. Pima Heart then leased the first floor. When Pima Heart recently vacated the building, Cotlow decided to sell to M&M Commercial Property, LLC (Mark Enzor, manager).

The buyer purchased to owner occupy, dba Geeks 2 You Computer Repair, and occupy the first floor while leasing the second floor of building, partially occupied by Edward Jones. Geeks 2 You has offices in Tucson and Phoenix where they provide PC and Mac computer services, virus removal, WiFi Networking and Business IT Consultation for home or business.

Property has good signage, private offices, a conference room and break room, private bathrooms and rear parking for employees.

Dean Cotlow with Cotlow & Company was self-represented in the sale. The buyer was represented by Chuck Corriere, MBA, with KW Commercial (Tucson).

For more information, Cotlow can be reached at 520.881.8180 and Corriere can be contacted at 520.400.9811.

To learn more, see RED Comp #10016.

Dominium Donates $50,000 to Arizona Nonprofits in Honor of 50 Years of Service

Phoenix, Arizona  – Dominium, one of the nation’s leading owners, developers and managers of affordable housing, is celebrating its 50^th anniversary with the opening of its Mountain West headquarters in Scottsdale.

As Arizona’s housing crisis looms, Dominium and its partners are investing $1 billion in the state to develop affordable housing for essential workers and Arizona’s seniors. Dominium has already opened Solstice of Mesa, providing 237 affordable homes for seniors, adding to its existing portfolio of Copper Cove Apartments in Tolleson and Mountain Park Townhomes in Show Low.

Additionally, Dominium currently has over 850 affordable homes under construction across the Valley, with an additional 3,000 units proposed in the next few years.

In honor of its 50 years of service, Dominium is donating $10,000 to each of the following five Arizona nonprofits doing important work in the state: UMOM, Yes Housing, Inc., Save the Family, First Place AZ, Arizona Community Foundation’s Arizona Housing Fund.

“Locating Dominium’s Mountain West headquarters in Arizona enables our development staff, who all live in the Phoenix area, to work closely with local leaders to address the state’s significant housing shortage. The people who live in our apartments are teachers, firefighters, police officers, and grocery store workers who deserve a quality home,” said Paul Sween, Senior Managing Partner at Dominium. “As part of our 50^th anniversary, we are thrilled to support Arizona nonprofit leaders who are terrific partners in improving the state’s housing crisis.”

Nationally, Dominium manages more than 38,000 apartments in 19 states. Dominium has a reputation of developing high-quality properties that they own and manage for the long-term. Dominium is collaborating with the Arizona Department of Housing, the Arizona Industrial Development Authority, and a number of other investor partners to increase the number of affordable housing units in the state.

“My charge is to combat housing instability in Arizona and be creative in finding solutions,” said Tom Simplot, director of Arizona Department of Housing. “Dominium is already making meaningful progress on advancing Arizona’s housing options. Dominium’s properties are workforce housing at its best. We are thrilled they decided to locate their Mountain West headquarters in Arizona and look forward to continued collaborations.”

PHOTOS: Solstice of Mesa; Image Courtesy of Dominium