Continued moderate growth seen for commercial real estate market
National survey sees relatively clear sailing through 2019
A new three-year economic forecast says the U.S. commercial real estate industry is, in general, expected to see moderate growth through much of 2019.
The forecast, released by the Washington, D.C.-based Urban Land Institute Center for Capital Markets and Real Estate, is based on a survey of 48 industry economists and analysts representing 34 real estate investment, advisory and research firms and organizations, was conducted in September.
It provides forecasts for broad economic indicators, real estate capital markets, property investment returns for four property types, vacancy and rental rates for five property types and housing starts and prices.
The forecast projects relatively high but moderating commercial real estate volumes, continued commercial price appreciation (but at a decelerating rate), rent growth, positive returns (also at lower levels), relatively stable vacancy/occupancy rates for all commercial real estate sectors and continued growth in single-family housing starts.
In fact, according to William Maher of ULI and director of North American strategy and research at LaSalle Investment Management, respondents “downplayed the possibility of a spike in economic growth through 2019. At the same time, they confirmed that the current expansion could become the longest one since records were kept starting in the 19th century.”
He added that, while real estate will benefit from continued growth, “U.S. property markets are close to equilibrium, which should result in inflationary rent growth and returns in the single digits for core real estate and equity real estate investment trusts.”
Among the survey’s key findings for commercial real estate are:
• Prices are projected to rise by an average of 4 percent per year over the next three years (5 percent, 4.1 percent and 3 percent, respectively), compared to the prior forecast’s average of 3.9 percent, and the long-term average increase of 5.6 percent.
• Over the next three years, national vacancy or availability rates are forecast to rise modestly for all property types except industrial, which will stay flat. • Apartment vacancies are expected to increase from 4.8 percent to 5.1 percent in 2019, down from 5.4 percent in the prior survey.
• Industrial availability will be 7.9 percent in 2019, no change from 2016 and well below the long-term average of 10.2 percent.
• The office vacancy rate is forecast to increase steadily over the next three years, ending 2019 at 13.4 percent. Retail availability is expected to reach 10.3 percent in 2019.
• Real estate transaction volumes will fall to $450 billion in 2017, a decline of $46 billion (9 percent) from the 2016 level.
• The single-family housing outlook improved over the past six months, with starts forecast to reach 960,000 units in 2019, closing in on the long-term average of 1 million per year. Home price growth is forecast to average 4.8 percent over the next three years.
• Industrial rent growth will lead all property types with 2017-19 growth averaging 3.7 percent, followed by hotels at 2.7 percent revenue-per-available-room growth; apartments, 2.3 percent; office, 2 percent; and retail,1.7 percent.