Not too hot, not too cold — just like the porridge in “Goldilocks and the Three Bears.”

That’s how Revathi Greenwood, Americas head of research at Cushman & Wakefield, describes the current U.S. economy. Greenwood spoke at the 11th annual Outlook on the Commercial Real Estate Market, an event co-sponsored by Katten Muchin Rosenman and Cushman & Wakefield, on Thursday evening about current economic conditions, how they are impacting commercial real estate and what the outlook is for Charlotte’s real estate market this year.

Greenwood noted that geopolitical events today are very uncertain, with “a new curveball” thrown out every day. But, she said, the world economy will chart its own course, despite those uncertainties.

The question on everybody’s mind: When will the next recession occur?

“All of us know this is tracking to be the longest expansion we’ve ever had,” Greenwood said. “We don’t see a recession happening for at least two to three years.”

She predicted U.S. GDP growth this year would remain between 2.5% and 3%, adding that Charlotte is expected to outperform the U.S. economy and could experience a rate of growth closer to 4%.

What to keep an eye on? The stock market, which is at an all-time high; when an inverted yield curve will occur and whether that will predict a recession, as it has before; and changes to net migration and immigration, which impacts commercial real estate because two of its associated industries — technology, a growing industry that’s becoming a significant office space occupier, and construction — employ a large number of immigrants.

The federal tax reform passed late last year should have positive implications for real estate.

“Overall, the commercial real estate markets are a winner from tax reform, (both at) the asset level, where we’ll see modest improvements, but also the investor level,” Greenwood said, adding the changes will increase the attractiveness of commercial real estate as an asset class.

Looking at Charlotte specifically, Greenwood had largely positive news. She noted that despite several office deliveries in 2017, vacancy remained in the single digits and is hovering between 8.5% and 8.8%. Last year was a good one for absorption as well, not just in the central business district but in the suburbs, too — in fact, a recent CBRE report noted that Charlotte’s office market witnessed its highest level of absorption since 2000. Charlotte Center City Partners says the absorption rate for office space in the CBD is the fourth highest in the U.S., behind Seattle, New York and Chicago. Charlotte’s market-wide absorption is sixth in the nation, behind Dallas, Seattle, New York, Austin and Los Angeles, according to CCCP, which sourced its data from JLL.

The multifamily industry continues to remain hot in Charlotte because younger populations continue to move here in droves, Greenwood said.

“Millennials … are more open to renting,” she said. “That drives the mechanics of this market as well.”

Apartment rental rates are on the rise, which Greenwood noted could present problems, but she added that wage growth for the demographics moving to multifamily developments under construction — many of which contain luxury units and are packed with amenities — are generally keeping pace with rent growth.

As is the case in most other markets, Greenwood is “very, very bullish” on industrial in Charlotte. Changes in consumer spending — most prominently the shift to buying online versus brick-and-mortar stores — has created sky-high demand for distribution, especially last-mile centers.

Greenwood said Charlotte is well-located for industrial development and that absorption is outpacing deliveries. A number of speculative industrial projects are underway across the region and all are seeing robust pre-leasing activity.

On the capital markets end, secondary Sunbelt markets like Charlotte will continue to enjoy the influx of institutional capital because pricing is still competitive in those markets, which also have good demographics and growth stories, Greenwood said. Pricing remains very high in more traditional gateway markets.

There’s also a lot of capital “waiting on the sidelines” to be deployed, and much of that will flow into secondary markets with healthy growth in 2018.

“Overall, Charlotte is very well-poised to benefit from the fact that people are searching for yield and searching for yield in secondary tier markets,” Greenwood said.

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Original article on CBJ