Forecast Calls for Less Bullish Expansion

Commercial real estate should continue expanding at “healthy and fairly steady” levels through 2017, a survey of nearly 50 economists said yesterday.

The Urban Land Institute released its Real Estate Consensus Forecast, a semi-annual survey of analysts representing 36 real estate investment, advisory and research firms. Their consensus predicts three more years of favorable real estate conditions but indicates a slightly less bullish outlook than last April’s survey.

“The latest Consensus Forecast has picked up on recent growth concerns and stock market corrections around the world,” said William Maher, director of North American strategy for LaSalle Investment Management, Baltimore. He said the U.S. economy and real estate markets remain much healthier than most other countries, but noted that other economies’ downturns affect U.S. capital markets in an inter-related world.

“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,” Maher said.

The new survey forecasts that most real estate indicators will exceed their 20-year averages in 2015, with four exceptions: commercial property price growth, equity real estate investment trust returns, National Council of Real Estate Investment Fiduciaries’ returns and retail availability rates could slip. 

The forecast also said:

•             Commercial property transaction volume will likely increase for another two years then level off at a “robust” $500 billion by 2017.

•             Commercial real estate prices are projected to rise 10 percent this year then slow to six percent growth in 2016. The survey predicted that price growth will drop to 4.5 percent in 2017, below the long-term average growth rate.

•             Institutional real estate assets should provide 11.7 percent total returns in 2015, moderating to nine percent in 2016 and seven percent in 2017. By property type, industrial and retail should see the highest returns, followed by office and apartments, in all three years.

•             Vacancy rates should decrease modestly for office and retail over all three forecast years. Industrial availability rates and hotel occupancy rate will likely improve modestly in 2015 and essentially plateau in 2016 and 2017. Apartment vacancy rates are expected to decline slightly for the rest of this year but reverse direction and rise slightly in 2016 and 2017.

•             Commercial property rents will likely increase for the four major property types in 2015, ranging from two 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 four percent for office. Hotel revenue per available room could increase by 7.9 percent in 2015 and 4.2 percent in 2017.