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Forecast: Commercial Real Estate to Grow Modestly by 2019

A recent forecast out of the Urban Land Institute (ULI) presents a modest growth scenario for the economy, as well as the real estate industry in the commercial sector.

The ULI Real Estate Consensus Forecast, a semi-annual projection based on survey responses, anticipates commercial real estate will see $450 billion in transaction volume in 2017 and 2018, and $430 billion in transaction volume in 2019—figures above the historical average. On the economic side, the forecast expects GDP to grow a “healthy” 2.3 percent in 2017 and 2.6 percent in 2018, then shrink 2 percent in 2019.

“The latest survey of U.S. real estate economists showed a marked increase in expected economic measures, most likely due to President Trump’s proposals to reform the tax code, reduce regulatory burdens, and invest in infrastructure,” says survey respondent William Maher, director of North American Strategy and Research at a major real estate investment management firm. “However, while greater job and income growth will be positive for U.S. real estate markets, forecasters were reluctant to upgrade real estate fundamentals or returns. New supply in the pipeline along with higher interest rates are likely keeping real estate economists cautious, but more likely realistic as uncertainty about future growth remains a concern.”

Notably, the forecast shows 920,000 single-family housing starts in 2019, up from 781,500 in 2016.

Commercial financing (through commercial mortgage-backed securities) will remain at $76 billion in 2017, according to the forecast, then grow to $80 billion in 2018 and $85 billion in 2019. Financing totaled $101 billion in 2015. Commercial real estate price growth will ease, however, to 5 percent in 2017, 3.5 percent in 2018 and 3 percent in 2019—figures below the historical average. Commercial real estate rent growth, relatedly, will land between 2 percent for apartments and 4.6 percent for industrial assets in 2017, then between 2 percent for apartments, office assets and retail assets and 3 percent for industrial assets in 2019.

Source: Urban Land Institute (ULI)

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