ULI Forecast Sees Potential Rebound in 2021-2022

The Urban Land Institute, Washington, D.C., said a consensus of real estate economists surveyed expect a short-lived recession and above-average GDP growth in 2021 and 2022.

The ULI semi-annual Real Estate Economic Forecast survey of 43 economists and analysts at 37 real estate organizations said the recovery will likely start next year and be even more positive in 2022, though growth will likely vary by sector. Real estate market conditions and values should hold up much better than was expected six months ago, with industrial real estate and single-family housing expected to perform best.

“The fall survey provides generally good news about the U.S. economy and real estate markets, particularly compared with the spring survey,” said Maher Strategies Principal William Maher. “The worst fears of earlier this year have mostly eased. Several survey respondents pointed out the inherent difficulty of forecasting given the many unknowns related to the coronavirus pandemic. Others pointed to further uncertainty due to the upcoming national election, with big differences in tax policies between the two main presidential candidates.”

Maher said real estate economists “are signaling that resilience and underlying strength will likely win out over uncertainty and risk.”

Last week, however, the Mortgage Bankers Association issued its own forecast (www.mba.org/crefresearch), saying commercial/multifamily originations could drop by 34 percent from 2019’s record volume of $601 billion to $395 billion by year-end 2020. MBA anticipates a slight increase in lending volumes in 2021, with activity rising to $407 billion in commercial/multifamily mortgage bankers originations and $305 billion in total multifamily lending.

“There remains a great deal of uncertainty about the pandemic and its impacts on the economy and commercial real estate, with significant differences across property types and capital sources,” said Jamie Woodwell, MBA Vice President for Commercial Real Estate Research.

Other ULI survey findings:

–U.S. GDP will likely decline by 5 percent in 2020, down from 2.2 percent in 2019. The economists surveyed said they expect GDP to rise 3.6 percent in 2021 and 3.2 percent in 2022. This represents an increase for 2020 over the May forecast (-6 percent), but a decrease for 2021 (3.9 percent) and 2022 (3.6 percent).

–Yields on the 10-year U.S. Treasury note are expected to remain at the same level of the forecast six months ago, 0.8 percent, this year before slightly rising to 1 percent in 2021 and 1.5 percent in 2022. The latter two years are down from the May survey, falling from 1.3 percent and 1.7 percent, respectively.

–Real estate transaction volumes could begin rising in 2021, though not to levels seen toward the end of 2019. Full-year 2020 is forecast to see $300 billion in volume (up from the May forecast of $275 billion), which will likely rise to $400 billion in 2021 (equal to May’s forecast) and $500 billion in 2022 (also equal to May).

–Commercial real estate price growth as measured by the Moody’s RCA Commercial Property Price Index is expected to drop by 2 percent this year (up from a projected -7 percent in May), stay flat next year (down from 1 percent) and increase to 4 percent in 2022 (down from 5 percent).

–Rent growth for the next three years is expected to stay either negative or middling, except for industrial, which should remain robust. Industrial rental growth will likely lead all property types with an average of 2.1 percent over 2020-2022, followed by multifamily at .03 percent, office at -0.5 percent, retail at -2.3 percent and hotel revenue per available room at -3.3 percent.

–The forecast for real estate returns as measured by the National Council of Real Estate Investment Fiduciaries’ Property Index are higher in 2020 than they were six months ago, but lower for the latter two years. Total returns are forecast at -1.7 percent, 3.0 percent and 5.6 percent for 2020, 2021 and 2022, respectively.

–Real estate economists believe equity real estate investment trust returns will rise, though not to the level seen in late 2019. The National Association of Real Estate Investment Trusts’ total return composite is forecast to average 0.8 percent from 2020-2022.