Driven by sparser availability of warehouses, offices, and retail, the real estate industry is positioned for solid growth this year and next, before tapering off at a still-respectable $500 billion in annual transactions in 2017.
Those predictions highlight Urban Land Institute’s (ULI) latest three-year Real Estate Consensus Forecast, based on the median of forecasts from 46 economists and analysts at 33 leading real estate organizations, who were surveyed from February 27 through March 23.
The expert consensus projects an 18% increase, to $470 billion, in commercial real estate transactions for 2015, followed by a 6.4%, to $500 billion, in 2016.
ULI’s forecast is more optimistic for the years 2015 and 2016 than previous forecasts for all indicators except single-family home starts.
The experts’ optimism stems, in part, from their predictions for healthy GDP growth, which they expect to rise by 3% this year and next, and by 2.8% in 2017. If realized, those would be the highest annual growth rates in nine years.
In addition, the U.S. economy has been experiencing its highest rate of job growth in 15 years. “For real estate, it’s really about jobs,” says William Maher, a director with LaSalle Investment Management, who analyzed the results of the survey for ULI.
The Consensus Forecast provides oultooks for specific construction segments:
• Institutional real estate assets are expected to provide total returns across all sectors of 11% in 2015, moderating to 10% in 2016 and 9% in 2017. By property type, returns should be strongest for industrial and office, followed by retail and apartments, in all three years.
• Vacancy rates are expected to decrease modestly for office and retail over all three forecast years. Industrial availability rates and hotel occupancy rate are forecasted to improve modestly in 2015 and 2016 and level off in 2017. Apartment vacancy rates are expected to begin rising slightly to 4.7% in 2015, 5% in 2016, and 5.3% in 2017. The 2017 forecast is just below the 20-year average vacancy rate.
• CRBE estimated that the availability rate for the industrial/warehouse sector declined to 10.3% at the end of 2014, coming in just below the 20-year average for the first time since 2007. ULI Consensus Forecast predicts availability rates will continue to decline in 2015 and 2016, with year-end vacancy rates at 9.8% and 9.6%, respectively, and remain steady in 2017 at 9.6%. Consequently, warehouse rental rate growth should continue, by 4% in 2015, 3.8% in 2016, and 3.1% in 2017, all above the 20-year average growth rate.
• The same pattern can be found in office vacancy rates, which declined for the fourth straight year, to 13.9% in 2014. That pattern is expected to continue through 2017, sparking further appreciation in office rental rates, which according the Consensus Forecast will increase by 4% in 2015 and 4.1% in 2016. Rental rate growth is expected to moderate slightly in 2017 to 3.5%.
• The Consensus foresees improvements in retail availability. And with rents increasing in 2014 for the first time in six years, the Consensus Forecast expects rental rates to sustain this growth, increasing by 2% in 2015, 3% in 2016, and 2.9% 2017.
ULI will release its next Consensus Forecast in October.
Related Stories
| May 29, 2014
7 cost-effective ways to make U.S. infrastructure more resilient
Moving critical elements to higher ground and designing for longer lifespans are just some of the ways cities and governments can make infrastructure more resilient to natural disasters and climate change, writes Richard Cavallaro, President of Skanska USA Civil.
| May 29, 2014
Retail renovation trends: Omni-channel shopping, personalized experiences among top goals of new store designs
In pursuit of enhanced customer experiences, retailers are using Big Data, interactive technology, and omni-channel shopping to transform their bricks and mortar locations.
| May 23, 2014
Top interior design trends: Gensler, HOK, FXFOWLE, Mancini Duffy weigh in
Tech-friendly furniture, “live walls,” sit-stand desks, and circadian lighting are among the emerging trends identified by leading interior designers.
| May 20, 2014
Kinetic Architecture: New book explores innovations in active façades
The book, co-authored by Arup's Russell Fortmeyer, illustrates the various ways architects, consultants, and engineers approach energy and comfort by manipulating air, water, and light through the layers of passive and active building envelope systems.
| May 19, 2014
Why e-commerce won't kill 'bricks and mortar' retail sector
Despite emerging structural challenges and newly-announced store closings, such as those of Radio Shack and Office Depot, the U.S. retail sector has continued on its solid recovery.
| May 13, 2014
19 industry groups team to promote resilient planning and building materials
The industry associations, with more than 700,000 members generating almost $1 trillion in GDP, have issued a joint statement on resilience, pushing design and building solutions for disaster mitigation.
| May 11, 2014
Final call for entries: 2014 Giants 300 survey
BD+C's 2014 Giants 300 survey forms are due Wednesday, May 21. Survey results will be published in our July 2014 issue. The annual Giants 300 Report ranks the top AEC firms in commercial construction, by revenue.
| May 6, 2014
'Ugliest building in New Jersey' finally getting facelift
After a decade of false starts and mishaps, the American Dream mall in the Meadowlands may finally get built.
| May 5, 2014
8 modern trends in student dining
Creating a dining experience for the modern millennial requires not only a deep knowledge of good design, but also an understanding of what makes today’s students tick. Culinary designers and consultants provide insights into what trends are transforming the campus table.
| Apr 30, 2014
Visiting Beijing's massive Chaoyang Park Plaza will be like 'moving through a urban forest'
Construction work has begun on the 120,000-sm mixed-use development, which was envisioned by MAD architects as a modern, urban forest.
