CREW Portland's 18th Annual Economic Forecast Breakfast
By Marisol Ricoy McAllister, Farleigh Wada Witt
The 18th Annual Economic Forecast packed a punch with Craig Wessel of The Portland Business Journal as the emcee, and Lauralee Martin, CEO of the Americas, Jones Lang LaSalle, John Mitchell, M & H Economic Consultants, and Susie Lahsene, Senior Manager Transportation and Land Use Policy, Port of Portland, as the presenters.
Working at a global real estate firm, Lauralee Martin has the unique ability to make 2013 predictions taking into account certain forces affecting real estate throughout the world. Ms. Martin’s presentation focused on themes for 2013 which she considered transition, transformation and opportunity. Her first theme considered governments in transition and how their uncertain politics are affecting the economy in 2013. She reviewed four major global economies including the US, Europe, China and Japan, showing that the current political environment in all of these areas will likely cause slow global growth. In turn, that slow growth has caused other effects. For example, slow growth has heightened the focus on productivity, created slower employment and absorption growth, and caused vacancy levels to remain at near historical highs. She also showed that slow growth has created two classes of real estate, the “haves” and the “have nots.” The “haves” side includes Class A and trophy office space, multifamily rental, technology and energy markets, urbanized locations, modern big-box distribution and core stabilized assets. The “have nots” include commodity and Class B office, government-heavy markets, commodity retail, suburban locations, financial markets and risky assets. Cities are in the “have” category, driving capital investment there. She gave some startling statistics demonstrating this trend. Three hundred cities account for 40% of global GDP. In addition, one million people a day move to a city somewhere in the world, resulting in the fact that the world’s urban population now exceeds the rural population. Ms. Martin then gave three criteria for measuring the success of cities of the future (all spelled the British way purposefully) modernisation, globalisation, and urbanisation. Modernisation includes technological readiness, intellectual capital, depth of IT ecosystem, and employment in high-tech sectors. Globalisation includes international real estate investment, air connections, number of corporate global headquarters, and power (the ability to attract people and corporations). Urbanisation includes economic dynamism, affluence of its citizens, livability and resilience of the urban environment.
The second force that Ms. Martin reviewed was transformation. She showed that changing demographics affects real estate. The population is aging, Generation Y is emerging, and there are growing minority voices. This multi-generational workforce is transforming the workplace to include more dynamic, creative and collaborative spaces, and de-focusing work from where you go to what you do. In addition, the financial crisis has depleted net worth and reversed the homeownership trend of General X and Y. Technology also has played a role in the transformation of real estate. Technology changes how we work with mobile devices driving employee productivity, and creating an elastic workforce. In addition, technology changes how our buildings work, is reshaping the marketplace and drives geographic growth, shaping the composition of occupancy gains across markets.
Last, Ms. Martin described the 2013 outlook and opportunities. Policy uncertainty and debt burdens likely to continue and create volatility.
Susie Lahsene, with the Port of Portland, brought the local Oregon perspective to the forecast, showing that Oregon is “Leveraging Our Trade Strengths.” As the Senior Manager for Transportation and Land Use, Ms. Lahsene manages land use policy and transportation capital strategy and fund acquisition for the Port’s transportation system, terminals and industrial land base. Agreeing with Ms. Martin, Ms. Lahsene reminded us that the economy continues slow, steady progress, with losses still occurring, but gains outpacing losses. The recovery is looking increasingly more sustainable if not spectacular or exciting. The state forecast is the same as it ever was. Seven years after the recession began, Oregon will have recovered the jobs lost (2014). Oregon has a tale of two economies, with Portland recovering, and South Central/Southeast Oregon still losing out. Oregon international trade continues its growth trajectory, and has returned to pre-recessionary levels. Exports continue to build, trade with Japan is down, though exports are up. Growth is strongest with South Korea and Canada. Portland is benefitting more than the rest of the state from trade. Ms. Lahsene explained that the Portland-Vancouver area is the 12th largest metro area in value of local exports and exported 18.2% of GMP in 2010. Ms. Lahsene reviewed trends for marine trade and aviation industry in the area. There is general “soft” optimism for maritime trade with a strong outlook for auto imports coming off disasters in Asia in 2011. In aviation, mainline carriers plan for small reduction in domestic capacity while increasing international capacity. Overall, airlines continue to exercise capacity discipline to offset high fuel costs. She believes that further airline consolidation is a possibility. Ms. Lahsene reviewed industrial real estate trends noting that there is cautious optimism over the next 12-18 months on the demand side. Net absorption is expected to remain steadily strong. There is still demand for data centers.
Ms. Lahsene reviewed the Portland/Vancouver region’s potential for economic recovery and growth and discussed four key points. First, the region’s wages are not keeping pace in the economy. Our median household income is well below Seattle, Minneapolis, and Denver, and our per capital income is at least 2 percent below the U.S. metro average in 2010. Second, our region is trade dependent and traded sector jobs will define our future. Portland/Vancouver exports 1/5th of its economic output and is 23rd in population but 12th largest exporting region by value in the US. Traded sector jobs will bring new dollars into the economy, support local serving businesses and pay higher wages. Third, regional transportation investment for business market access remains critical to the success of our traded sector. Businesses need to feel secure that their transportation needs are being met. They need to know their inputs are arriving on time, their finished product can make the connection out of Oregon, and that their production process will not have to be shut down to beat traffic. Therefore, the transportation infrastructure has to be there to serve business interests, including river navigation channels, rail improvements and runways. Last, we need land on which to grow traded sector jobs.
Our ever colorful annual presenter, John Mitchell, did not disappoint this year. His presentation topic was entitled “Influences Moving our Economy or Plodding Past the Cliff.” He started by setting the stage for 2013 by discussing the influences coming into the year including the fiscal cliff, the fact that this is the 4th year of the upturn, that December 2012 employment is 4 million below 1/2008, but 4.78 million above 2/2010. In addition, there is on-going weakness in Europe and Japan and net worth rising. He then reviewed the contributions to GDP growth. This recovery does not compare to other post-recessions recoveries.
Mr. Mitchell described our policy cauldron: The payroll tax holiday ends, tax cuts expire for over $50,000, sequester process is delayed for 2 months, new Medicare taxes start, estate tax rate bumped, unfortunately long term spending not addressed, debt ceiling remains unresolved, and more battles loom soon. The government has been using monetary policy to stave off inflation and keep the economy going. However, Mr. Mitchell wondered what will happen when the government stops buying securities? The fed has also announced that the exceptionally low rates will remain as long as unemployment remains above 6.5%and inflation is no more than .5 points above 2% longer run goal. Mr. Mitchell cannot predict whether this will make any difference to the recovery.
Mr. Mitchell then went on to review Oregon’s current status. Oregon is the 21st in the nation for job growth in November 2012 compared with last year at this time. In fact, 44 states are up. Not surprisingly, North Dakota remains first. From February 2008 to February 2010, Oregon gained 147,700 jobs. In addition, personal income in Q3 for Oregon was up .8%.
Mr. Mitchell then went on to look toward 2013, and the influences in the economy: Uncertainty remains, most likely growth near 2%, housing strength will persist, falling debt burdens, rising income and employment, balance sheet strengths, and financial institutions strength.
Of course, Mr. Mitchell ended our breakfast with an epic poem describing the past year and what is likely to come, and I personally, will never forget that “Christmas” became “Cliffmass”!