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A Downturn Is Coming, But Its Overall CRE Impact Is Anyone’s Guess


Speculation about the next downturn in the U.S. economy has become the official sport of the commercial real estate community while markets continue to grow. Experts still say a correction is on the horizon, but opinions differ as to how much impact it will have. 


“It doesn’t seem like there’s something on the horizon to forecast a sharp downturn,” PricewaterhouseCoopers Director of Real Estate Research Andrew Warren said during a panel last week at the Urban Land Institute’s Fall Meeting in Boston. “Nobody necessarily thinks we have to end the economic expansion.”

The panel was for an early release of ULI’s 2019 Emerging Trends in Real Estate report, which surveyed and interviewed 2,300 industry experts on where they felt CRE was heading in the coming years. The report, and some of the other panelists, felt the market was heading toward a profit plateau rather than a downward spiral. A new era demands new thinking, according to the report.

Panelists pointed toward global examples of why the ongoing era of economic expansion might not be as abnormal as some CRE naysayers might think.  

At 114 months and counting, the U.S. economy has been expanding since June 2009 and is the second-longest streak of its kind in U.S. history. The longest streak ran 120 months from March 1991 to March 2001. While some might expect the economy not to have much runway left, the longest U.S. cycles don’t even crack the top five for global examples of longevity in economic growth. Australia is the global leader, at 324 months and counting since 1991.

Heitman Managing Director Mary Ludgin, Prologis Senior Vice President Mark Hansen, PwC Regional Business Development Leader Mitch Roschelle, ULI Global Chairman Tom Toomey and ULI Global CEO Edward Walter

“Perhaps cricket is the right sport to compare it to than baseball,” PwC Regional Business Development Leader Mitch Roschelle said. “The longest cricket match is nine days.”

Slower growth this cycle compared to ones in the past is a factor in the optimism for more expansion in the years ahead. Gross domestic product growth in the U.S. has hovered around 2% for much of the cycle, and the Congressional Budget Office released a forecast in April showing average growth of 1.9% through 2028, according to the report. This unremarkable growth is expected to eventually lead to a plateauing of real estate transaction volume. But one panelist wasn’t as optimistic as the rest.  

“I remember in the run-up to [the] last downturn the chatter of ‘Are we done with cycles?’ and the nod to Australia’s ongoing economic expansion,” Heitman Managing Director Mary Ludgin said. “I think it’s a bit delusional to think we’re done with cycles.”

Although she felt 2019 will still be a good year for real estate, Ludgin said factors like rising interest rates and a maturing of some of the benefits to the recent tax overhaul would push the economy toward a downturn.

Fear of what might happen with global economic growth was only ranked as moderately important to the ULI respondents, but interest rates, capital costs, available talent and job growth were all ranked as highly important in the survey.


While she may have had a more pessimistic outlook than others on the panel, Ludgin said the next downturn wouldn’t be like the global financial crisis of 2008. Instead, she expected it to mirror the tech bust of the 2001 downturn. That correction was concentrated, and some markets were even able to avoid the repercussions of the dot-com bubble burst. 

“There will be a recession, but it will be over so quickly you will have a harder time measuring it,” ULI Global Chairman Tom Toomey said. “Information flow being at a higher velocity means people make decisions quicker.”

Improved reporting and information since the last recession will enable leaders to correct behavior quickly in the next downturn and move forward with recovery. Despite the expectation of a looming correction, panelists remained optimistic about certain markets, like Dallas, Raleigh and the conference host city of Boston as well as the industry being on much stronger footing than it was in 2007 pre-Great Recession. 

“It seems like there is a lot more room to run in terms of economic recovery,” Roschelle said. “If we do find ourselves in a recession, a real estate asset class will not have caused this one.”

Related Topics: Heitman, ULI, PWC, next market downturn