In our third installment with Helmut Pastrick, we ask for his feedback on the recent NAIOP Economic Oulook Survey. Are our members on the right track? Find out below.
We recently did a survey with some of our members, asking for their predictions for the next 12 months. One of the questions we asked them was "Do you think the average Metro Vancouver industrial land value will be higher, lower, or the same, twelve months from now?" 58% of respondents thought that industrial land values are going to be higher - they have a positive outlook on the economy. How do you think that compares to the actual state of affairs?
I would concur with that view. Given the moderate growth performance and land supply constraints, the economy is not booming - I don't expect booming land prices either. However, some increase would be reasonably likely. As long as we don't see a recession play out, land prices will hold up and rise somewhat. If we do see a recession, and it is severe, then yes land prices would come off. Certainly looking beyond the next year, three or five or ten years out, land prices, both for residential, industrial and commercial, will be significantly higher.
Should we expect a general upward trend?
Yes, that's right. The long term trend remains upwards. Every now and again there is a break in the trend, occasionally a recession or a decline; sometimes there's just a period of flat trend range bound performance with no large increases, no large decreases. That has occurred in the past, and may well be the case for the next little while. We are not seeing a lot of upward price pressure, it remains moderate. I think we need to see this EU situation have some resolution; concerns over the US recovery need to be firmed up; and of course we need to actually see some growth; then I could see some more significant upward pressure in prices. Demand for industrial space and demand for office space should increase as the economy grows at a better pace.
Vancouver Circa 1904
In terms of interest rates, 70% of our members predicted that interest rates will stay the same over the next 12 months. Are they on track with that prediction?
I think so, yes. I don't think we'll see a change by the Bank of Canada (BoC) until early 2013, and rates will remain low. There will be some bouncing around in rates, but when it comes to the prime business lending rate, I don't expect any change. We need to see a period of sustained economic growth, we need to see the uncertainty diminish concerning Europe and the US, and then that would set the stage for increased rates.
In fact, if you look at the futures market for 3-month banker's acceptances, it is expecting the BoC to actually cut rates within the next 6 months, not raise rates. The futures market is expecting a weaker economy and potentially a recession; that's the only reason the BoC would cut rates. The only other reason would be if a financial or banking crisis began to emerge with a greater likelihood and the BoC participated in a global easing.
Do you think rates are going up? Do you think our members are on the right track with the Economic Outlook Survey? Share your comments in the section below, and don't forget to check in next Wednesday for the final installment of the Industry Leaders Blog featuring Helmut Pastrick. We will be discussing the possibilities of a double-dip recession, and ending with some overall words of advice for NAIOP Vancouver members.