Nuveen: Think U.S. cities Q4 2019 outlook

The U.S. economy is entering its 11th year of expansion, the longest since 1854. During second quarter 2019, the U.S. economy grew at an annualized rate of 2.1 percent and is on track to grow around 1.8 percent in third quarter 2019. Strong employment and solid household income growth should support consumer spending during the next two quarters of 2019.

Nuveen expects the U.S. economy to grow between 2.0 percent and 2.5 percent in 2019.

During the July 2019 Federal Open Market Committee (FOMC) meeting, the Federal Reserve lowered the target range for federal funds rate to 2.0 percent to 2.25 percent. Should the U.S. economy enter a recession, the Federal Reserve will have little room to cut the federal funds rate significantly. The federal fund futures market is pricing in a 95.8 percent chance that the FOMC will continue to cut rates by the end of 2019, the consensus likelihood of a recession this year remains at 31 percent.

The key risks to U.S. economic growth and, by extension the U.S. real estate market, are the U.S-China trade war and slowing global economic growth. To-date the trade war has minimally affected U.S. economic growth but an increase in the amount of tariffs would hurt U.S. consumer spending and would hurt businesses that rely on trade and global supply chains to generate revenue.

U.S. real estate prices rose 1.8 percent in the 12 months ending July 2019, a modest increase relative to the past several years. The NFI-ODCE saw a total return of 5.46 percent net of fees for the year ending second quarter 2019. NOI grew 4.8 percent during this time period. Given the maturity of this real estate cycle, NOI growth is expected to generate the majority of U.S. real estate total returns in 2019.

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