2.1 Economic and Structural Demand Drivers Absorption across the apartment, office. retail, and warehouse sectors has closely tracked the economy over time, advancing (as a share of inventory) at roughly half the pace of GDP growth (see Exhibit 2). Economists have lamented the mediocre pace of the post-financial crisis expansion, with GDP growth averaging 2% compared with 3% in the 2000s and 4% in the 1990s.3 The recovery of CRE demand has also been somewhat weaker. However, since 2013 demand has increased slightly faster than economic growth alone would imply, courtesy of a declining homeownership rate (supporting apartments), strong job growth (office). and burgeoning e-commerce distribution (industrial).'' We believe that economic and structural support for absorption could remain firm at least through 2017. 4% f 3% ilia' .11111 illiiiii S- 2% a -1% I —1 - cr 0 Correlation = 080 -2% 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 Absorption %rants &JIM, a' Ex <morn,: Anallus EGOP), C PSISEA UM DautWile .tuts tYmnapentnt Aotorcbuo Don ns Mal*, :?)I!,. Ancrott, is crAual.ws),INed Pam the ApantIont Ca mel9=0:. xtsi ftetp..ect.t. ott..r.% 8% 6% 4% 2% 0% 2% -4% tilmoJO dC10 The U.S. economy has weathered multiple headwinds over the past year, including weaker Chinese growth, a surging dollar, and financial-market volatility. The economy decelerated in late-2015 and early-2016 as manufacturing (about 15% of GDP) slipped into recession. ,'• A soft global economy and strong dollar wil€ likely continue to weigh on exports, manufacturing, and corporate profits. However, housing and consumer spending, which together constitute about 70% of GDP, are resilient and may receive additional support from lower interest rates in the wake of the UK's "Brexit" vole! Home sales, prices, and construction are rising at a solid but sustainable rale of about 5% annually and household finances are in pristine condition, wi