ULI: CRE ‘Poised for a Rebound’
A panel of 42 real estate economists said commercial real estate is “poised for a rebound,” the Urban Land Institute reported.
The think tank’s latest Real Estate Economic Forecast surveyed economists at 39 real estate organizations. The group indicated it believes the industrial sector will remain particularly strong, the office sector should rebound by 2023 and other asset classes are likely to bounce back from pre-pandemic lows and grow in future years.
“While the fall 2020 forecast was notable in its reversal of many of the pessimistic forecasts from spring 2020, the current forecast goes even further, with several forecasts now ahead of long-term averages,” said William Maher, Director of Strategy and Research with RCLCO, Bethesda, Md. “Among the 2021–2023 metrics predicted to outpace long-term averages are GDP and employment growth, the unemployment rate, real estate transaction volumes [and] warehouse and apartment occupancy and rent growth.”
Jamie Woodwell, MBA Vice President of Commercial Real Estate Research, said the sector is reaching a period where uncertainty about what would happen to properties during the pandemic is largely fading and questions–and answers–about post-pandemic performance are driving the commercial real estate market. “That’s led to a shift in sentiment for different property types and is opening up transaction activity, with economic optimism translating directly into competition for deals,” he said.
ULI said it expects commercial real estate transaction volume to recover relatively quickly through 2023, nearly reaching parity with 2019’s volume. This year’s volume could approach $500 billion, followed by $550 billion next year. Commercial mortgage-backed securities issuance will likely reach $85 billion next year and $90 billion in 2023, both of which exceed the $82 billion 20-year average.
Commercial real estate price growth as measured by the RCA Commercial Property Price Index will likely remain below 2020 levels at least through 2023, dropping to 4.2 percent this year and increasing to 5 percent in 2022 and 2023.
Real estate returns as measured by the National Council of Real Estate Investment Fiduciaries’ Property Index should be higher in 2021 than last year and will likely continue to rise throughout the next two years for office and retail, ULI said. The report forecast total returns of 4.5 percent, 5.9 percent and 6.5 percent for 2021, 2022 and 2023, respectively. Once again the industrial sector leads all property types with a 9.8 percent average return, followed by apartment at 6.2 percent, office at 3.6 percent and retail at 2.5 percent.