Executive Summary
• U.S. GDP declined by 1.4% on an annualized basis in Q1 2022, counter to consensus expectations of modest 1% growth.
• Trade subtracted 3.2 percentage points from GDP as imports surged ahead of exports in Q1. This is the result of U.S. economic growth markedly outpacing the rest of the world.
• A slowdown in private inventory investment also subtracted 0.84 percentage points from GDP, following a significant buildup in inventories in Q4 2021. This likely was a temporary seasonal effect.
• Consumer and business spending remained strong: Personal consumption was up by 2.7% while fixed investment (business equipment) was up by 7.3%.
• Despite the decline in Q1, CBRE forecasts GDP growth of close to 3% for the year. We also expect that the negative growth in Q1 will not affect the Fed’s decision to hike interest rates, with a 50-bp increase still on track for next week. Economic conditions will remain strong enough to continue supporting improved real estate fundamentals.
Commercial Real Estate Highlights
Office
Office-using industries such as financial services and tech registered strong demand growth in Q1. This bodes well for office demand as COVID concerns recede and employee work patterns become clearer.
Retail
Personal consumption increased by 2.7% in Q1. We expect consumer demand to remain resilient throughout the year, underpinned by a historically strong labor market and healthy consumer balance sheets. This will support retail property fundamentals.
Industrial
CBRE maintains a positive outlook for industrial & logistics property market fundamentals. Although the Q1 decline in inventory investment was a small negative, we expect favorable conditions to continue for the rest of 2022.
Multifamily
Negative GDP growth in Q1 has not changed CBRE’s view on the underlying strength of the U.S. economy this year. Coupled with a robust job market, higher mortgage rates and less single-family home affordability, this will bolster demand for multifamily.
Hotels
Accommodation & food services sales grew in Q1. CBRE expects hotel demand will continue to improve due to a surge in leisure travel and a broad resumption of business and international travel.
The Bottom Line
The U.S. economy shrank by 1.4% in Q1 2022. This was largely due to a decline in trade (-3.2 percentage points) and in inventory investment (-0.84 percentage points), reflecting the strength of domestic demand relative to a weaker global economy. GDP components that are indicative of underlying strength remain positive: Personal consumption increased by 2.7% and business spending jumped 7.3%. These factors, combined with a strong labor market, are more indicative of the state of the U.S. economy at the start of 2022. Consequently, we do not expect the Q1 drop in GDP will alter the Fed’s plans to continue hiking interest rates this year.
CBRE forecasts GDP growth of close to 3% for the year, which will underpin improving real estate fundamentals. Risks for the U.S. economy are more likely in 2023, as inflation falls and the lagged effects of tighter monetary policy take hold. As such, we expect general economic uncertainty and financial market volatility to continue in 2022.