Economic Watch: U.S. GDP Grows by 6.9% in Q4 2021

Executive Summary

• U.S. GDP grew by 6.9% on an annualized basis in Q4 2021, exceeding consensus expectations of 5.5%.
• Full-year growth of 5.7% in 2021 was in line with CBRE’s forecast of 5.6%.
• Consumer and business spending were very strong in Q4 despite continued supply chain disruptions and the emergence of the COVID-19 omicron variant.
• Replenishing inventories added 4.9 percentage points to GDP growth in Q4, likely reflecting businesses maintaining higher levels of stock to meet increased demand and counter supply chain disruptions.
• This better-than-expected growth underscores the strength of the U.S. economy and will bolster the Fed’s case for rate hikes this year, beginning in March.
• Commercial real estate fundamentals will continue to improve in 2022 as CBRE expects annual GDP growth of at least 4.5%.

Commercial Real Estate Highlights

Office

Office-using industries such as financial services and tech saw notable growth in Q4 2021. This bodes well for office demand, particularly as pandemic-related uncertainty eases.

Retail

Consumer spending accelerated and was up by 3.3% in Q4 2021, although supply-chain disruptions continued to hamper growth in certain sectors. We expect those disruptions to further moderate in 2022. With the consumer in good shape and as public health concerns recede, the stage will be set for retail fundamentals to further strengthen during the year.

Industrial

Replenishing inventories added 4.9 percentage points to U.S. GDP growth in Q4, likely due to businesses countering supply-chain difficulties by maintaining more stock. Such dynamics greatly support already strong industrial & logistics fundamentals.

Multifamily

A strong economy and labor market will continue to support household formation, while housing shortages and high house prices will continue to bolster multifamily demand. Nevertheless, there may be some near-term headwinds for new supply related to labor and materials availability and cost.

Hotels

Accommodation & food services contributed to GDP growth in Q4, underpinned by low unemployment and healthy consumer balance sheets. CBRE expects leisure travel to remain strong, with international and business travel continuing to experience some volatility.

The Bottom Line

The U.S. economy grew at an annualized rate of 6.9% in Q4, bringing full-year 2021 growth to 5.7% (in line with CBRE’s forecast of 5.6%). Growth was propelled by strong consumer and business spending. Disrupted supply chains have exacerbated price pressures in certain areas and remain a drag on growth. This was seen particularly in motor vehicles and durable goods during Q4.

We expect GDP growth to slow sharply in Q1 2022 due to the COVID-19 omicron surge. This will put the Fed in a more difficult position, given its preference to raise interest rates and withdraw monetary stimulus. However, we still expect at least three increases in the federal funds rate this year, beginning in March. Economic growth should rebound in Q2 2022, driven by strong private-sector demand, and reach between 4% and 5% for the full year. This will in turn help drive an increase in demand for commercial real estate.

Several quarter-point interest rate increases are not expected to significantly disrupt commercial real estate investment in light of the continued strong economy. Additionally, CBRE expects the 10-year Treasury yield to rise by only 2.3% in 2022. As a result, real estate should be comparatively more attractive to investors as a hedge against inflation and as historically low-cost debt remains broadly available.