As expected, the U.S. Federal Open Markets Committee ended its asset purchasing program — you know, “quantitative easing” — at the end of October, ending its six-year effort to prop up the economy and hold off deflation, a fate that “would have been a terrible death for the [commercial real estate] industry,” in the words of Ray Torto, GCE and current lecturer at Harvard, Graduate School of Design.
And, with unemployment under 6 percent for the first time since 2008, and GDP growth expected to hit the hallowed 3 percent mark in 2015 and 2016, according to the OECD, the timing might be just right — for commercial real estate and the greater economy. As Torto notes:
“QE ending takes the wind from our backs, but commercial real estate has some self momentum now, and the end of QE will, in a few years, lead to higher interest rates as a reflection of a growing economy. All asset classes that discount future cash flow will be affected by higher rates, but with NOI growing, commercial real estate is in a sweeter spot than any fixed income asset. The rising NOI will offset some — or all — of the effects of higher discount rates.”
But QE’s reign hasn’t ended everywhere — the Bank of Japan, for example, decided to extend and expand its QE program just two days after the U.S. ended its own, following recommendations from the OECD to do just that amid meager growth projections as low as 0.9 percent for 2014 and 1.1 percent for 2015.
And similar measures have been recommended for the struggling euro area, where the OECD projects growth as low as 0.8 percent for 2014 and 1.1 percent for 2015, despite “positive steps” taken this summer by the European Central Bank, which include the introduction of a negative interest rate.
“With euro area inflation far below target and drifting downward, the European Central Bank should expand its monetary policy stimulus — even beyond measures already announced — building on the positive steps taken to date,” the OECD said in a statement released Nov. 6.
QE-ville may no longer be located in the United States, but it is easing its way off the world stage amid the baby-stepping global recovery.
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Reg Clodfelter is a reporter with Institutional Real Estate, Inc.
