ULI: Transaction Volume Expected To Decline

Commercial property transaction volume will likely decline over the next three years to $475 billion in 2018, predicted the Urban Land Institute, Washington, D.C.

But even this diminished volume surpasses other years except for 2007 and 2015, ULI noted.

Commercial and multifamily mortgage bankers closed $503.8 billion in loans during 2015–just shy of 2007’s record high–the Mortgage Bankers Association reported last week.

While ULI survey respondents expressed more concern than they did last year, they expect to see a “gradual” slowdown, said survey participant William Maher, director of North American strategy for LaSalle Investment Management, Baltimore. “Compared to six months ago, real estate researchers are predicting slower economic growth, slipping real estate fundamentals and lower returns from both the public and private markets,” he said. “As was the case six months ago, there is no imminent downturn on the horizon although global economies and markets remain fragile and volatile.”

Researchers surveyed anticipate continued commercial price appreciation and positive returns, but at more subdued and decelerating rates; above-average but decelerating rent growth rates across property sectors and better than average occupancy rates, except for the retail sector.

“Current market fundamentals are healthy,” said Trepp Senior Director of Research, Susan Persin, an economist surveyed. “A downturn is not yet on the horizon, but future economic and real estate market growth will be slower.”

Commercial mortgage-backed securities issuance, which dropped significantly in early 2016, could reach $85 billion for the year and then return to $100 billion in both 2017 and 2018, the survey said.

Institutional real estate assets are expected to provide 8.1 percent total returns in 2016, moderating to 7.2 percent in 2017 and 7.1 percent in 2018. By property type, survey respondents expect stronger returns for industrial and office assets this year, followed by apartments and retail. They expect little variation among property types by 2018.

Vacancy rates should continue to improve modestly for office and retail over all three forecast years, ULI said. Industrial availability rates and hotel occupancy rate will likely improve modestly in 2016 and then slightly reverse direction in 2017 and 2018, while apartment vacancy rates should rise over the next three years.