Real Estate Consensus Predicts Slower Growth in 2017
Jan 13, 2017
Despite the optimism apparent in the stock market since the election, participants surveyed in September for the ULI Real Estate Consensus Forecast were mildly pessimistic. After six years of expansion, industry professionals are predicting that the commercial real estate sector’s growth will slow with pullbacks predicted in a variety of indicators for 2017. In fact, the forecast for the next three years is for commercial real estate activity to remain relatively high compared to its 15-year average but to show gradual slowing.
ULI Real Estate Consensus Forecast
The “ULI Real Estate Consensus Forecast” is issued semiannually by the Urban Land Institute (ULI). Seeking to sustain thriving communities worldwide, the ULI was founded in 1936. This independent, global nonprofit provides leadership in the responsible use of land. ULI is supported by its 40,000 members which represent every aspect of real estate development and the land use disciplines. The forecast is created by surveying economists and analysts at the nation’s leading real estate organizations. Most recently this included 51 leading real estate economists from 37 organizations.
Commercial Real Estate Transaction Volume Forecast
Industry sentiment is showcased by their forecast for the Commercial Real Estate Transaction Volume as seen below. The projected 2017 decrease of 5% may look substantial but it is still $170 Billion above the 15-year average. In addition, the survey predicts lower economic growth, interest rates, commercial mortgage backed securities (CMBS) issuance, housing starts, private real estate returns, and Moody’s commercial property price index.
Bright Spots in Commercial Real Estate for 2017
Among these muted growth projections there were a few areas of optimism. The economists surveyed predicted better than average vacancy/occupancy rates. An especially bright spot appeared in apartment vacancy rate forecasts. Apartment vacancy rates are already near historic lows, yet the survey predicts continued stability with an increase in 2017 through 2018. The industrial and office sectors are expected to stay steady in ‘17 and ’18. Hotel occupancy rates were predicted to stay above 65% which is well above the 20-year average of 61.6%.
As a whole, the economists were also positive about the industrial sector. Rent growth in the industrial sector was projected to be the highest with a 3.8% increase over the next three years. An increase in demand for warehouse space was attributed to growth in e-commerce business models. This was the only commercial property type that had a more optimistic forecast than given in the last biannual survey. Projections for average rent growth rates for the other commercial property types [link commercial property types to CREL page] were 3.5% for apartments, 2.6% for offices, and 1.6% for retail.
Commercial Real Estate Growth Expectations
Overall, September survey participants still predicted growth in the real estate sector but less growth than was projected in March of this year. Consistently they lowered expectations for key indicators such as housing starts, CMBS issuance, and real estate returns within the last six months. This may have reflected uncertainty about the U.S. election and just slower growth in the U.S. economy throughout 2016 than was expected. Reassuringly, no recession or major market decline was predicted for the near future.