In this episode, Gary Ralston, Managing Director and Senior Advisor of SVN | Saunders Ralston Dantzler Real Estate, covers three topics that seem to be top of mind for everybody in commercial real estate: recession, inflation, and what it means for real estate. Utilizing tools available to all real estate professionals, he shows us what this data indicates for the economy overall and the commercial real estate market.
What does it mean to be in recession? Gary explains this concept as a period of time in which an economy experiences “two quarters of economic decline”. Typically, this is calculated and measured through different economic statistics such as Gross Domestic Product (GDP) and unemployment.
Gary continues his analysis by revealing that GDP had decreased at an annual rate of 1.6% within the first quarter 0f 2022. Similarly, it is estimated that GDP will reach another decline of about 1.5% in this next quarter. Using what we know about recessions, it is understood that the two metrics of recession have been met and the U.S. economy is headed in that direction.
It is also important to note that unemployment peaked in April of 2020 at a rate of about 14.2%. Within the last several months however, the unemployment rate has flatlined to about 3.6%.
As Gary continues, he addresses the latest news on U.S. inflation. According to the U.S. Bureau of Labor Statistics, CPI rose 9.1% over last year. This is the highest level of inflation that we have seen in decades. However, due to the “unprecedented event” in February of 2020, we also reached an all-time low in employment. Considering this, we can find comfort in knowing that this behavior is not consistent.
How does the market measure inflation? Gary explains that the market calculates this by taking the difference between constant maturity treasuries and inflation protected treasuries. When looking at the statistics for 10 year inflation, these respective data points are sitting 2.93 and 0.57 which tells us we can expect an inflation rate of only 2.3% over the next 10 years. The bottom line? It is indicated that our current level of inflation will not continue.
As Gary frequently states: “real estate is a space for people”. So let's look at the population statistics. From April 2020 to July 2021 the U.S. population experienced growth of about 0.1%. During that same time however, the population of Florida grew about 1.1% which equates to 10 times the U.S. growth. The areas of Lake, Polk, and Orange counties grew about 3.1% to 3.9% alone. If “real estate is space for people”, this population growth is indicative of an increased demand for real estate.
As Gary addressed, not only is inflation expected to decline, but the population within the Florida market is also experiencing exponential growth. These factors are all key indicators of strong economic growth within the future of our economy. That being said, there has never been a better time to invest in real estate within the magnificent beauty of the sunshine state.
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Federal Reserve Bank of St. Louis
Board of Governors of the Federal Reserve System
U.S. Bureau of Labor Statistics
U.S. Census Bureau
About Gary Ralston, CCIM, SIOR
Gary M. Ralston, CCIM, SIOR, SRS, CPM, CRE, CLS, CDP, CRX, CRRP, FRICS is a Managing Director and Senior Advisor at SVN Saunders Ralston Dantzler Real Estate. He is the country's most designated practicing commercial realtor. Gary has been in commercial real estate for over 40 years. He holds a Master’s in Real Estate and Construction Management from the University of Denver. Gary is an adjunct faculty member at Florida Southern College and the University of Florida. He was inducted as a Hoyt Fellow (www.hoyt.org) in 2001. Gary is a member of the Regional Economic Information Network of the Jacksonville Branch of the Federal Reserve Bank of Atlanta. In his video webinar series, DataBreak with Gary Ralston, he shares his passion for data, shares his wealth of industry knowledge.