Forecasters Less Optimistic Than Six Months Ago Over Market Trends in Apartment, Retail and Office Sectors
Reflecting exactly what one real estate financial expert referred to as a general belief of “restrained optimism,” the latest ULI Realty Consensus Forecast sees a more modest rate of industrial realty transaction from the crazy pace seen in recent years, and a gradual slowing however still increases in rental rates, occupancy and prices through 2019.
The projection, based on a survey last month of 53 realty market financial experts and experts representing 39 property organizations, sees ongoing development in CRE fundamentals but at a more muted speed over the next three years. While respondents were more optimistic compared with the previous ULI agreement study in October about the efficiency of the warehouse and industrial sector, they were less bullish on the apartment or condo, retail and office sectors compared with 6 months ago.
“The results reflect a particular lowering of expectations for the next 3 years relative to current years,” said Anita Kramer, senior vice president, ULI Center for Capital Markets and Realty. “But development is still favorable and in a variety of cases, much better than long-term averages.”
While task and income growth are expected to remain favorable for U.S. realty markets in coming years, forecasters hesitated to update real estate fundamentals or returns, kept in mind survey individual William Maher, director of North American strategy and research at LaSalle Financial investment Management.
“New supply in the pipeline, together with greater rates of interest, are likely keeping realty economic experts careful, but most likely, reasonable as unpredictability about future growth remains an issue,” Maher said.
Total CRE sales transaction volume is expected to continue stepping down from the record $547 billion in annual deal volume attained in 2015, projected to drop another 8% this year from 2016’s $489 billion overall sales volume. Participants expected total sales to hold constant at $450 billion in 2018 before dipping to $430 billion in 2019.
With business property rates projected to grow at subdued rates in the next three years, overall institutional-grade realty properties are expected to offer typical returns of 7% this year, dipping to 6% in both 2018 and 2019.
Panels at the Spring 2017 ULI Realty Consensus Forecast consisted of (clockwise) mediator Tim Savage, senior managing financial expert, CBRE Econometric Advisors; K.C. Conway, senior vice president, credit risk management, SunTrust Bank; Mary Ludgin, managing director and director of worldwide financial investment research, Heitman; and Melissa Reagen, head of realty and agricultural research study, MetLife.
On the other hand, financial investment returns in the growing commercial sector are predicted for 9.8% in 2017, followed by 7% for retail and 6% for apartment and office properties.
Vacancy and schedule rates for the commercial, workplace, and retail sectors are anticipated to continue dropping in 2017, with the exception of home vacancy, where the rate is expected to increase once again this year to 5.2%. Vacancy rates in all the four major industrial property types are anticipated to stay flat in 2018 and 2019.
Rental rates in all sectors are expected to continue rising through 2019, albeit at more suppressed levels than current years, varying from 4.6% for commercial to 2% for houses this year, and varying from 3% for commercial to 2% for retail, office, and apartment or condos in 2019. Hotel earnings per offered space (RevPAR) is anticipated to increase by 2.5% in 2017 and 2.4% in 2019.
In an online discussion of the ULI survey results Wednesday, panelists minimized issues that the apartment sector is ending up being overbuilt, though they expect some CBDs will see an oversupply.
“Lease growth is still positive and capital still likes this item type, so I believe that the forecasts of the end of multifamily and the doom’s day of overbuilding are significantly early and overstated,” said K.C. Conway, senior vice president, credit danger management, SunTrust Bank. “We see a lot more health than we see concern.”
Similarly, alarming headings about shop closures and bankruptcies oversimplify the complex forces improving the retail sector, noted Mary Ludgin, managing director and director of global investment research study with Heitman.
“Exactly what we’re seeing are old stodgy formats lose to brand-new formats,” Ludgin stated, including that, regardless of several recent retailer insolvencies, store growth continues a net basis.