Economists See Steady Economic, Real Estate Growth through 2021

Real estate economists are tempering their views on U.S. economic growth but they continue to forecast steady real estate markets and returns through 2021, said the Urban Land Institute, Washington, D.C.

“Economists see no end to the current record-setting economic and real estate expansion that started in 2010,” said LaSalle Investment Management Director of Americas Strategy and Research William Maher. “Economic growth, including GDP and job growth, is forecast to moderate from the strong levels of 2018, which should keep long-term interest rates low.”

Maher noted with the likely exception of the retail sector, which continues to struggle, “real estate fundamentals and returns should stay steady through 2021.”

ULI surveyed 41 economists and analysts at 32 real estate organizations. Its semi-annual Real Estate Economic Forecast called the economists’ sentiment “generally upbeat” despite a short U.S. Treasury bond yield curve inversion–which often signals an impending recession–an escalating U.S.-China trade dispute and slowing European economic growth

The U.S. set a new economic expansion longevity record in July, Maher noted. “Forecasts through 2021 continue to be positive, indicating the current expansion will continue,” he said. “Consequently, real estate fundamentals should stay healthy, with returns to the asset class changing little over the forecast period.”

Other predictions the economists made for 2020 and 2021 include:

–U.S. GDP will likely moderate to 1.7 percent in 2020 then rise slightly to 1.9 percent in 2021.

–Net job growth should average 1.7 million per year through 2021 compared to a long-term average of 1.1 million. The expected job growth of 2.2 million in 2019, 1.4 million in 2020 and 1.5 million in 2021 increased from the prior forecast conducted in April.

–Year-end yields on the 10-year U.S. Treasury note are expected to be 1.8 percent, 2.0 percent and 2.3 percent in 2019, 2020 and 2021, respectively. All three predictions are down compared to six months ago when economists expected to see 2.8 percent year-end 10-year Treasury yields for 2019 and 2.9 percent for 2020 and 2021. Maher called the decline in expected yields “a remarkable shift [that] should be positive for real estate values.”

–Real estate transaction volume will likely moderate over the forecast period after a strong 2018. The final 2018 volume, $579 billion, represented the second-highest level since the 2008 global financial crisis. ULI said the economists it surveyed predict transaction volume will equal $475 billion this year, $450 billion in 2020 and $415 billion in 2021, all down from prior forecasts.

–Expectations for annual commercial mortgage-backed securities issuance fell slightly, to $75 billion in 2019, $65 billion in 2020 and $75 billion in 2021, just below the long-term average of $80 billion.

–Rent growth expectations for the next three years rose or were steady for all property types except industrial and hotels, where rent forecasts fell. Despite this change, industrial rent growth will likely lead all property types with growth three percent average growth expected between 2019 and 2021, followed by apartments at 2.5 percent, offices at 2.1 percent, hotels at 1.4 percent revenue per available room growth and neighborhood and community center retail at 1.3 percent.