Economy exceeds expectations in fourth quarter. Annualized gross domestic product jumped 6.9 percent in the final period of last year, largely on the back of an increase in inventories. Personal expenditures contributed nearly 2.3 percent to last quarter’s gain, primarily due to holiday spending that was spread throughout the period. Much of the positive momentum could carry into 2022. While the influence of stimulus on capital markets is fading, the ongoing labor shortage is applying upward pressure to wages, supporting greater consumer spending. Ultimately, growth prospects could hinge on the Federal Reserve’s response to ongoing economic headwinds, most notably high inflation.

Commercial real estate well positioned. Uncertainty surrounds the ability of the Fed to both maintain maximum employment and rein in price increases. If the central bank overcorrects, it would temper or even suspend growth; commercial real estate, however, is in a strong position to weather these headwinds. Fundamentals in nearly all commercial sectors, including industrial and multifamily, have recovered from the effects of the pandemic. Retail, which was projected to be one of the hardest hit sectors, will see vacancy come to within 10 basis points of the pre-health crisis rate this year.

Hospitality poised for gains in 2022. While the worst projections for retail never emerged, the travel industry did take a large hit due to the impact of the pandemic. Since the dissemination of vaccines, tourism has markedly improved. The recovery in business and international travel has lagged, leading to divergences in hotel property performance. Limited service hotels and establishments in popular domestic leisure destinations are generally outperforming properties with higher room rates or those in urban centers. Assuming subsequent virus variants present smaller threats to health, more offices will reopen, aiding hotel room demand. That should help boost food services, as well as accommodations and recreation services components of GDP. Neither sector has played a significant role since the onset of the downturn.

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Sources: Marcus & Millichap Research Services; Bureau of Economic Analysis; Bureau of Labor Statistics; STR, Inc. U.S. Census Bureau