Market Watch

Economic Cycle

4th Quarter 2017 Hotline

Market Watch
by Joe A. Hollingsworth, Jr.

By now, you have read it over 50 times. You have heard it on TV over 30 times. Sometimes it just seems to be relentless…that the media has to drive home the point that we are in an economic cycle that should have already matured or is approaching the downturn. Economists, who try to do forecasting based on the past (which is like driving a car looking in the rear view mirror), cannot get it right. When they say they estimate something, it is more of a guesstimate. In fact, my weatherman does a much better job of being accurate. It’s obvious that the stock market doesn’t agree with the economists.

I, for one, am strongly convinced that at no point in time (that I can recall) in America’s economic history that: 1) The onshoring of jobs/business has become so massive; 2) The discussion of protective tariffs are realigning America’s national corporations to relook at investing in the United States instead of overseas; 3) Regulation after regulation in literally every department of the federal government is being lifted or revised. In fact, a recent statistic quoted in the Wall Street Journal said over 610 regulations have been substantially altered as of June 30th year-to-date; 4) Capital is fleeing from the potential controls of China; 5) Low inflation is justifying (to some extent) lower than normal interest rates; 6) Over 40 million people are receiving federal assistance in which a portion of those could be active participants in the workforce if the entitlements were lowered or drug tests were implemented; 7) The controls of federal government are more in conservative hands (not saying that they are good at it yet); and, 8) There is pent up demand that has built up over the previous 8 years. In fact, the list goes on and on.

I maintain that the next 12 years (whether Trump is re-elected or not) will be the “best 12 years of our economic lives”. Small business ownership and individual initiative can lift this country again easily, unleashing the ingenuity behind individuals and their thirst for personal success. Although, this is not limitless; it can certainly carry us for a decade.

As it pertains to industrial real estate, I believe that there is no better time to build; because, scarcity has taken hold of the market, driving rental prices up. Older space has taken a “grand ride”, also. Many might say, “Why not just buy existing space?” However, as we have experienced in the market, existing net leased properties are greatly overpriced. And, while I certainly don’t want to throw rocks at that business model, to have new highly-flexible space with life spans of 40 to 45 years is now beginning to command premiums. The real question is whether developers can force the market to longer term leases with firm escalators to justify new builds; we say yes!

As far as our company’s direction, we are buckled up, strapped in, and ready to experience what will be “the greatest ride of our economic lives”.

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