CRE Forecast Moderates

The outlook for the economy, real estate capital markets and real estate fundamentals remains positive but will likely moderate over the next three years, said the Urban Land Institute, Washington, D.C.

ULI surveyed 45 economists and industry analysts. Their consensus: growth will continue, but at a slower pace than previous years.

Despite stock and bond market volatility in late 2018 and increasing global trade and growth concerns, the ULI Real Estate Economic Forecast remained surprisingly consistent with the previous forecast conducted in October, said LaSalle Investment Management Head of Research and Strategy William Maher. “Overall, expectations for 2019 and 2020 are flat to up, while the newly introduced 2021 forecast calls for slower growth and returns,” he said. “Moderating growth in gross domestic product and jobs growth for 2019 to 2021 should lead to slower but still positive real estate demand and absorption.”

The survey projected CRE transaction volume to slip from $562 billion in 2018–the second-highest post-recession annual volume–to $535 billion this year and $500 billion in 2020. But volumes will likely remain substantially above the $327 billion 18-year average despite the projected declines.

Commercial real estate prices are projected to grow at slowing rates compared to recent years, at 5.0 percent this year, 3.7 percent in next year and 2.8 percent in 2021. Should that hold true, the latter two years will fall below the long-term average growth rate of 4.4 percent for the first time since 2011.

Analysts surveyed said they expect institutional real estate returns to slip from 6.0 percent this year to 5.0 percent in both 2020 and 2021. By property type, 2019 returns are forecast to range from 10.3 percent for industrial assets to 2.9 percent for retail properties. In 2021, returns should range from industrial’s 7.0 percent to retail’s 3.8 percent.

ULI predicted inflation-adjusted gross domestic product will moderate to 2.3 percent growth in 2019, then slip to 1.8 percent in both 2020 and 2021, compared to the 2.2 percent long-term average. “This is less optimistic than the forecast six months ago for 2019, but more optimistic for 2020,” the report said.