Sluggish Recovery Underscores Tepid Market Outlook

Corporate cash and a burgeoning technology industry have the potential to pull the U.S. economy out of a sluggish recovery, according to Cassidy Turley’s midyear U.S. Macro Forecast, but public and private debt, unemployment, and real estate continue to be a drag on the economy.

Confidence in the recovery remains shaky, especially as the latest round of quantitative easing comes to a close. The $500 billion worth of distressed commercial and residential real estate, including 1.7 million homes in foreclosure, is undermining hopes for a robust recovery. Adding to the concern is the unemployment picture with the report predicting continued weak job growth through year-end. Large corporate profits and strong demand will force companies to accelerate hiring in 2012 at the pace of 175,000 jobs per month instead of its current pace of 100,000 per month.

Commercial real estate has steadily improved over the past year and a half, led by office, industrial, and multifamily. Retail lags as consumers remain saddled with debt and continue to lack confidence in the economy. “The flight to quality continues,” according to the report, with class A space outperforming class B “by a wide margin.”

Based on historical demand levels, commercial real estate is two to three years away from absorbing excess supply. Office property accounts for 158 million square feet of the surplus, followed by industrial with 132 million sf and retail with 69 million sf. This excess supply will keep rents flat through at least 2012, according to the report.