Economic Pulse – 2007 outlook

After recording the best improvement in vacancy and largest increase in rents since the end of the 1990’s boom, the US real estate market is poised for another strong year in 2007. The fundamental supply and demand forces that shape the market point to further substantial declines in vacancy rates and gains in rental rates, especially for offi ce space.

Although employment growth is currently low by historical
standards, it is suffi cient enough to continue reducing vacancy rates and increasing rents in a national market that remains fundamentally supply constrained.

ECONOMIC BACKGROUND

The US economy entered a period of slower growth in the second half of 2006 as slowing housing markets put the breaks on consumer spending. We expect the slowdown to persist into the fi rst half of 2007 as consumers adjust to a world in which home prices don’t rise at double digit rates. But, with income continuing to increase at a healthy pace, household spending is expected to pick up the pace during 2007.

At the same time, growth in business investment in new equipment, which has lagged in the current expansion, should accelerate in 2007 as companies cope with intensifying global competition.

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