Savannah Chamber

11 5 Trade tensions, dollar strength, and travel restrictions will continue to dampen foreign investors' interest in U.S. commercial real estate as well. But there are some bright spots. For example, private spending will increase to build manufacturing and R&D facilities. In addition, construction spending by federal, state, and local governments will increase substantially. In contrast, there will be little interest in building new office towers or shopping centers because vacancy rates are high in too many markets. Even though consumers' spending on goods recovered quickly and is well above pre- pandemic levels, retail is overbuilt and under-demolished. Financing to build new retail space will be difficult to obtain, but some will be available for the repurposing of empty stores in good locations. The success of online retailing increases the need to build distribution centers, so industrial development will be focused on locations with logistical advantages. Public sector spending will increase much faster than private spending for nonresidential construction because revenue collections by state and local governments held up much better throughout the pandemic than initially feared. In addition, federal government transfer payments to state and local governments were massive. Now, however, many state and local governments realize that recent revenue gains are unlikely to be repeated and have earmarked revenue surpluses to one-time uses, such as construction projects, rather than to continuing obligations such as hiring permanent staff. Construction spending by local governments will increase faster than such spending by state governments due to local governments' high reliance on property taxes. Courtesy of the housing boom, many local governments' property tax digests are soaring and will continue to do so. In contrast, nonresidential property tax digests will grow slowly. Typically, assessed property values lag movements in market prices by several years. In 2024, pr operty tax bases will benefit from increases in residential real estate prices, so local governments' property tax bases will be very supportive of revenue collections and public construction, in turn. Business Spending We expect spending for equipment and technology to increase by about 1 percent in 2024 compared to 2 percent last year. Lending standards will not loosen much, and we expect banks to maintain a risk-off stance. High labor costs coupled with slower top-line growth will squeeze corporate profit margins, which will be a headwind for investment spending. Capacity utilization will be 78 percent, which is too low to stimulate stronger investment spending. Another negative is that many companies took on a lot of debt during the pandemic. Companies refinanced older debt to lower interest expenses and delay debt maturities, but bond issuance often exceeded the amount of debt retired. High interest rates will encourage deleveraging, which reduces funds available for investment spending. Of course, many companies are sitting on accumulations of cash which could simultaneously allow for higher investment spending and deleveraging. International Trade In 2024, the global economy will grow more slowly so international trade will provide less support to U.S. businesses. Imports are likely to grow faster than exports, which implies

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