2008 Economic Outlook

This time of the year, many economists predict what lies ahead for 2008. I don’t pretend to have access to special information nor am I a trained economist.

I do however see a good number of businessmen who own / operate various types of businesses covering many aspects of services and goods that are used by both commercial consumers and retail users. Here are my reactions to what I see and hear going into 2008.

There are stastics that indicate the overall U.S. economy is doing quite well, with very strong Gross Domestic Product numbers. GDP is the market value of all final goods and services produced within a country during a given time period. So this points to economic strength. When we shop, travel, book a hotel room or a dinner reservation, it seems the crowds are there as well. THis also seems to reinforce the notion that teh overall U.S. economy is doing well. We all read about and can see first hand, however the slowdown in the home building industry. The residential subprime mortgage crisis is very real as well.

The experts tell us there are concentrations of housing overbuilt locations and those will take 12-24 months to clear themselves up. That could be through 2009. If we believe their ‘good news’ they tell us the rest of the areas that are not concentrations of overbuilts (Northern Nevada Reno is not classified as one), will be back to a balanced market in 2008. Local realtors seem to be looking  for a bottoming out of residential pricing sometime in Q2 2008. 

In the industrial market locally, we are seeing a definate slowdown in absorption. Firms we have been working with have put projects on hold. New business moving in has slowed. Local expansions are also holding with plans at this time. Although I am not hearing negativity from business owners and upper level managers, we are seeing a slowing of decisions to push forward with plans that were set in motion earlier in the year.

When a large firm within an industry slows it’s expansion plans others hear about it and likewise reconsider their course of action. Many times this is a self-fulfilling situation when we read about a cooling demand and the supply side reacts.

I am not expecting a banner Q1 2008 for sales and leasing in Northern Nevada. I do feel that we could be looking at a domino effect building up. My sense tells me that when one or two of the larger stalled deals pushes ahead, we will see others jumping in as well. I can’t predict exactly when this will happen, but I would not be surprised this is occurring when the temps. are warming up this spring. When this happens, we can expect landlords to be raising lease rates and sellers to be raising sale prices with Cap. Rates that will be adjusting to accommodate.