- The $1.9 trillion American Rescue Plan enacted yesterday includes money for small businesses (particularly bars and restaurants), direct payments to households and enhanced benefits for the unemployed.
- Unlike previous COVID-relief legislation, the American Rescue Plan includes grants for state and local governments, expanded child tax credits, health insurance subsidies and funding for vaccine distribution.
- This is a major stimulus to the U.S. economy. However, the potential for inflation is limited with nearly 19 million Americans still unemployed or out of the labor force altogether, along with significant economic weakness outside the U.S., notably Europe and parts of Asia.
- CBRE forecasts a 10-year Treasury rate of 1.8% by the end of 2021 and 2.2% by the end of 2022.
- CBRE expects that economic growth will accelerate in Q2 as vaccines become widely administered and the stimulus juices the economy.
- Property market fundamentals are already improving amid a highly favorable macroeconomic environment, although a full recovery—particularly for the office, retail and hotel sectors—will not occur until 2022.
Vaccine distribution is expected to increase dramatically over the next two months, facilitating a safe return to offices and other workplaces. The American Rescue Plan provides money to accelerate the pace of vaccine administration, which will benefit the economy and further support office demand.
Retail will see significant benefits from the American Rescue Plan. These include roughly $60 billion in support for small businesses (roughly half for bars and restaurants), direct payments to consumers, increased child tax credits and enhanced unemployment benefits. All this will support consumer spending and benefit retail more fully once normal activity resumes.
A strengthening consumer economy will result in increased imports. This, coupled with higher levels of inventory to guard against any potential supply chain disruptions, will continue to fuel robust industrial demand this year.
There is $22 billion of assistance for renters facing COVID-related financial hardship. Additionally, increased unemployment benefits and direct payments to Americans will support renters and, by extension, multifamily fundamentals.
Hotels will benefit from aid to airlines and small businesses, as well as broader economic aid and pent-up demand once travel restriction ease through widespread vaccinations.
The Bottom Line
Additional fiscal stimulus will boost the U.S recovery. The $1.9 trillion American Rescue Plan provides significant upside potential to CBRE’s forecast of U.S. GDP growth near 5% in 2021. Robust growth expectations have caused some concern that rising interest rates could disrupt the recovery of property markets. CBRE believes such concerns are misplaced. There remains a high level of labor availability in the U.S. and weakness elsewhere in the global economy. In addition, the Fed has the policy tools to manage long-term interest rates so they do not escalate enough to disrupt financial markets or the recovery. As a result, CBRE does not expect the 10-year Treasury rate to go beyond 2.2% by the end of 2022.
Industrial and multifamily real estate are leading the recovery; office, retail and hotels will make some progress in 2021 but will take two to three years to fully recover. This outlook remains predicated on containment of new COVID variants.