Housing may power the U.S. economy to a soft landing.
“Home sales are still strong,” said Carl Tannenbaum, chief economist of LaSalle Bank/ABN AMRO, Chicago, speaking at the Grubb & Ellis 2001 real estate forecast.
“The economy is falling too rapidly, but consumers are hanging in there,” said Tannenbaum.
“Housing starts, especially in Chicago, still are strong. Low mortgage rates also will help. The lower rates could spur refinancing, which could work money back into the economy and increase consumption, including the purchase of sport-utility vehicles.”
Even so, Tannenbaum said, “we’ll have a challenging first half of 2001. Retail car sales are falling. But there are enough circuit breakers to keep us from the worst. The Fed will do whatever is needed.”
As for skyrocketing energy prices, “a lot of that stress will be over by spring,” he said. “Supply will rise to meet demand. But we must pay attention to the problem in California, which could cause a ripple through the economy.”
Tannenbaum believes a federal tax cut will not work fast enough to have much effect. “The Fed will take care of the economy quicker,” with interest rate cuts, he said.
However, the “tension between the two political parties will limit tax cuts and spending,” he added.
Tannenbaum stressed that psychology will be key to pulling the nation out of the slowed economy: “What we expect will determine what will happen.”
As for the stock market collapse in technology stocks, he believes “tech will return. We need both bricks and clicks. We need to meet our customers where they want to buy, and that may be on the Internet.”
Noting that “tech must work for us,” he added that sometimes it is hard for people to keep up with the speed of computers.
The Grubb & Ellis real estate forecast concluded: “In Chicago in 2001 there are few economic or business indicators that point to a `crash’ landing.”
These were among the highlights of the report:
Construction rolled on during 2000 in the Chicago office market, with seven projects totaling more than 4.7 million square feet in varying stages of development. It is likely that by the time these buildings are completed they will be 90 to 95 percent leased.
In spite of a year-end Class A office vacancy rate below 5 percent, it is highly unlikely that there will be significant levels of new, speculative office development in 2001. And looming ahead is the triennial reassessment for Cook County that will shape tax bills in the future.
Construction also was a major story in the suburban office market. By the end of 2000, 54 new projects totaling 5.2 million square feet were completed. An additional 60 projects were in varying degrees of development.
“It is hard to believe that the economic uncertainty and market volatility will not translate into slower activity levels in 2001,” said the forecast. Lower levels of construction activity from late 2000 into 2001 could create a short-term shortage of Class A office space options.
Retail development boomed in the Chicago area last year. Major projects included the completion of the new Nordstrom department store on Michigan Avenue, the opening of the 300,000-square-foot Deer Park Center in far north suburban Deer Park and the completion of the Shops at Deerfield Square in Deerfield.
West Loop residential development will serve as a catalyst for major retail projects there, while Walgreen’s “seemed to be developing a store on every available corner in the metro area,” said the report.
On the heels of the success of downtown redevelopment in Arlington Heights, Deerfield, Glenview and Mt. Prospect, more mature suburban downtowns likely will undertake plans to create more modern mixed-use environments, it said.
Activity in the industrial market should be on par with 2000, which was a good year, when projects totaling more than 10 million square feet came on-line, the report said.
It noted that the Bolingbrook/Interstate Highway 55 Corridor will remain hot. Land is available there and it already is widely known as a warehouse and distribution center. Additional building in the corridor appears a certainty.
