Already soft sector could land in even deeper slump
If a U.S.-led invasion of Iraq leads to a long-term conflict, consumer confidence and stock prices could plunge, igniting an economic recession that would send commercial property markets into an even deeper slump, according to an outlook from the USC Lusk Center for Real Estate.
Stuart Gabriel, director of the Lusk Center for Real Estatecolor>, said at an executive briefing yesterday that consumer confidence plummeted at the start of the Gulf War and sent the economy into a prolonged recession.
History could repeat itself, said Gabriel.
He noted that demand for office space, already weakened by the loss of 2.4 million jobs nationally over the past two years, would fall further, and rents could soften. Consumer confidence and spending would fall and retail sales would slow, reducing demand for retail space. Businesses would spend less on plants and equipment, dampening the need for industrial space.
Gabriel said that housing markets would benefit from continued low interest rates, but that some buyers might postpone purchases in light of the overall state of the economy.
Over roughly the past year, consumer spending has accounted for about 80 percent of GDP versus the traditional 65 percent, according to Gabriel. "Right now there's a lot of money on the sidelines," he said. "Investors are nervous."
Despite the current uncertainty, the economy could still improve in 2003, Gabriel said. GDP growth could increase to 3.5 percent in 2003 compared with an estimated 2.8 percent annual rate in 2002 and only 1 percent in the fourth quarter of last year.
But economic improvements would depend on a combination of events, said Gabriel. "The war would have to be avoided or quickly ended, consumer spending would have to be moderately strong, business confidence pick up, hiring recover and business capital spending pick up. Stock prices would also have to improve.