Washington, D.C. – The U.S. real estate industry is, in general, expected to be stronger than previously anticipated through 2018, according to the latest economic forecast from the Urban Land Institute’s (ULI) Center for Capital Markets and Real Estate. The ULI Real Estate Economic Forecast, which includes predictions over three years, is based on a semi-annual survey of 48 of the nation’s leading economists and industry analysts.
Responses to the most recent survey, conducted in March 2018, suggest that the industry is receiving a boost from the enactment of the Tax Cuts and Jobs Act in December 2017.
Survey participants’ expectations were higher for the U.S. economy as well as the real estate industry than in the previous survey, which occurred in October 2017. Although the outlook for stronger economic growth is accompanied by the likelihood of higher inflation and higher interest rates, the rate hikes are not projected to be detrimental to 2018 real estate returns.
The forecast, which covers 2018, 2019, and 2020, provides predictions for broad economic indicators; real estate capital markets; property investment returns for four property types; vacancy and rental rates for five property types; as well as housing starts and prices.
Forecasts for industrial returns are higher than projected six months ago, while office, retail, and apartment returns are expected to remain steady or be slightly lower than previously anticipated. Forecasts for 2019 and 2020 continue to show a moderating trend for all property sectors.
Transaction volume is expected to reach $450 billion in 2018 and $425 billion in 2019 – higher than was projected six months ago – before moderating to $408 billion in 2020. Similarly, commercial mortgage-backed securities (CMBS) issuance is expected to reach $90 billion in both 2018 and 2019 before decreasing to $80 billion in 2020. The prices paid for real estate may also see some initial benefit from a higher level of transaction activity. Survey respondents expect prices to rise 5% in 2018, then moderate to 3% and 2.3%in 20 19 and 2020, respectively.
“The outlook for individual property sector fundamentals generally continues to reflect the characteristics of the current real estate cycle,” said ULI leading member and survey participant Andrew Warren, director of real estate research at PwC. “Fundamentals either are steadily improving or appear to have stabilized at sustainable levels. Despite differences in performances between property sectors, there is no indication that we are about to see any imbalance in 2018 that will send any of the sectors into a significant downturn.”