Economy Watch: ULI Predicts Slower Growth for CRE

CRE volumes will remain relatively high and rent growth will continue, but at a slower pace than in recent years, according to the organization.
Commercial Real Estate Transaction Volume. Source: ULI Real Estate Consensus Forecast, October 2016

Commercial Real Estate Transaction Volume. Source: ULI Real Estate Consensus Forecast, October 2016

The Urban Land Institute’s October real estate forecast, which the organization released recently, predicts continued U.S. economic expansion over the next three years but at a somewhat slower pace than the prior two years.

Also, the report noted, there will be relatively high but declining commercial real estate volumes; continued commercial price appreciation; rent growth and positive returns but at more subdued and decelerating rates; and better than average vacancy/occupancy rates, except for retail.

Commercial property rents are expected to increase during the next three years in all sectors, ULI says, although at somewhat lower rates than in recent years. In 2016, rent increases in the four major property types will range from 2 percent for retail up to 4.7 percent for industrial. Rent increases in 2018 will range from 1.3 percent for retail to 2.9 percent for apartments. Hotel RevPAR is expected to increase by 4 percent in 2016 and 3 percent in 2018.

More broadly, most real estate indicators are forecast to be better than their 20-year averages in 2016, with the exception of commercial price appreciation, equity REIT returns, CMBS volume, and retail availability, among a few others. By 2018, a number of real estate indicators will be worse than their 20-year averages, such as commercial property price growth, equity REIT returns, retail availability, rental rate growth for office and retail, and RevPAR growth for hotels.