David C. Murray
Editor’s note: This column is an edited excerpt from an R.B. Murray Co. e-newsletter.It appears the world’s eyes are still upon our country’s economic affairs.
Discussions at the May 5–8 Society of Industrial and Office Realtors World Conference that I attended in Scottsdale, Ariz., were dominated by the current state of our economy. Considerable time was spent taking a close look at recessions of the 1950s, 70s, 80s and 2000s, and, of course, the recent meltdown in 2008. There was one common link among them: consumer spending brought about recovery. Analyst Jonathan Woloshin from Union Bank of Switzerland said way too many people take credit for success of the 1990s. He explained that the growth of the 90s was created by the baby boomers hitting the age of maximum consumption. A simple demographics study would show that once the boomers hit their mid-50s, spending would decrease, and create economic pressures.
When comparing the recessions, the difference of the recession that took place in 2008 was the breadth of those affected. In 2008, nearly everyone from the smallest business to major corporations felt the pain of the downturn. An eye-opening statistic that helps illustrate this fact is that of the 25 largest companies listed on the New York Stock Exchange at the beginning of previous recessions, only a few still make the list today. Enron was just one of many to fall, to later be replaced by the likes of Apple, Google and Amazon. The innovation of products, along with geopolitical events, assures us that much more change is to come. Things we take for granted, such as cell phones – now smart phones – GPS tracking, e-commerce and energy, are going to shape our future.
A real-world example of this change is that one company, Amazon, absorbed 50 percent of all high-quality distribution space in the U.S. in 2010. Amazon did not exist in 1990, it went online in 1995, and has become a force in our economy. The consumer has begun to spend again (slowly) as evidenced by Amazon, and even locally as our sales tax receipts have begun to grow again.
Our economy is like a three-legged stool, driven by the consumer, business and government. The consumer has done what it had too – cut back initially on spending and begin to pay down debt. Businesses cut back on expenses by enacting layoffs and curtailing capital expenditures. Consumers have created equity that will allow them to return to spending. Businesses follow the consumer, and supply the goods and services that the consumer has put off buying for the last three years. Government, however, is another story.
Government does a poor job of distributing resources, and many would argue the failure of our government to live within its means is a real problem. The mayors of New York City and Chicago were recently quoted as saying to their respective teachers’ unions that their members will have to take pay cuts, or face layoffs, not something you would normally hear from politicians who receive large donations from teachers’ unions. Reality has hit government at least at the local and state levels. What will the federal government do? No one knows, but the consensus at the conference was that there would not be significant changes until 2012.
When the conference ended, there was a renewed since of optimism, and a feeling that the worst was behind us. Still, some problems lie ahead, but the future for commercial real estate appears to be bright.
David C. Murray is vice president of Springfield-based R.B. Murray Co. and a member of the Society of Industrial and Office Realtors. He may be reached at dave@rbmurray.com.[[In-content Ad]]
