Rosy forecast for commercial real estate through 2017

The real estate market is projected to continue expanding at healthy and fairly steady levels for 2015 through 2017, according to a new three-year economic forecast released Wednesday by the Urban Land Institute (ULI) Center for Capital Markets and Real Estate.

The latest ULI Real Estate Consensus Forecast, a semi-annual outlook, is based on a survey of 49 of the industry’s top economists and analysts representing 36 of the country’s real estate investment, advisory, and research firms and organizations.

Compared to the previous forecast conducted in April 2015, the new forecast is slightly less bullish on its outlook; however, it predicts three more years of favorable real estate conditions.
“The U.S. economy and real estate markets are in much better shape than most other countries, but global economies and capital markets are increasingly inter-related. Still, the vast majority of indicators in the forecast indicate favorable economic and capital markets in the U.S., as well as moderately strong real estate fundamentals and investment returns,” William Maher, director of North American strategy for LaSalle Investment Management in Baltimore, a ULI leader and survey participant, said in a statement. 

Other findings of the forecast:
• Commercial property transaction volume is expected to increase for another two years and then level off at a robust $500 billion by 2017.
• Commercial real estate prices are projected to rise by 10 percent in 2015 and to slow to a 6 percent increase in 2016. Price growth is expected to drop to 4.5 percent in 2017, below the long-term average growth rate.
• Institutional real estate assets are expected to provide total returns of 11.7 percent in 2015, moderating to 9 percent in 2016 and 7 percent in 2017. By property type, returns are expected to be strongest for industrial and retail, followed by office and apartments, in all three years.
• Vacancy rates are expected to continue to decrease modestly for office and retail over all three forecast years. Industrial availability rates and hotel occupancy rate are forecasted to improve modestly in 2015 and essentially plateau in 2016 and 2017. Apartment vacancy rates are also expected to decline slightly in 2015 but reverse direction and rise slightly in 2016 and 2017.
• Commercial property rents are expected to increase for the four major property types in 2015, ranging from 2 percent for retail up to 4.6 percent for apartments and 4.9 percent for industrial. Rent increases in 2017 in these four types will range from 2.8 percent for retail to 4.0 percent for office.

The market survey, conducted last month, is the 8th in a series of polls conducted by ULI. The next forecast is scheduled for release in April 2016.