ULI Survey of Real Estate Economists

CRE Finance World, Summer 2012

ULI Survey of Real Estate Economists Stephen R. Blank Dean Schwanke Senior Fellow, Finance Executive Director ULI Center for Capital Markets and Real Estate T the group anticipates broad improvements for the nation’s in 2013 and followed by 2.75 million in 2014. Survey participants2013 and be 3.2% by 2014; the nation’s unemployment rate wasprojected to decline to 8.0% in 2012, 7.5% in 2013, and 6.9%by 2014; and the number of jobs created expected to rise froma 2 million expected additions in 2012 to be 2.5 million new jobs-he Urban Land Institute (ULI) conducted a survey of 38US leading real estate economists and analysts foundeconomy, real estate capital markets, real estate fundamentals and the housing industry through 2014. The findings mark the start of a semi-annual surveying of economists believe the improving economy will likely lead to higher inflation which will be known as the ULI Real Estate Consensus Forecast. and interest rates, which will raise the cost of borrowing for con- The survey is being conducted by the ULI Center for Capital Markets sumers and investors. 2012, 2013 and 2014, inflation, as measured and Real Estate. Overall, the survey results show reason for optimism, by the Consumer Price Index (CPI), is expected to be 2.4%, 2.8% predicting over the next three years: and 3.0%, respectively with 10-year Treasury rates increasing along with inflation, with a rate of 2.4% projected for 2012, 3.1% •Commercial property transaction volume will increase by for 2013, and 3.8% for 2014. nearly 50%; The survey was conducted during late February and early March •Commercial Mortgage-Backed Securities (CMBS) issuance with 39 national firms including BlackRock, CBRE, Freddie Mac, expected to more than double; Met Life Real Estate Investments, Prudential Real Estate Investors, and Trepp, LLC. It is a consensus view and reflects the median •Institutional real estate assets and real estate investment trusts forecast for 26 economic indicators, including property transaction (REITs) are projected to provide returns ranging from 8.5% to volume and issuance of CMBS; property investment returns, vacancy 11% annually; rates and rents for various property sectors; and housing starts and home prices. Comparisons are made on a year-by-year basis •Vacancy rates are expected to drop between 1.2 and 3.7 from 2009, when the nation was in the throes of recession, percentage points for office, retail, and industrial properties through 2014. and remain stable at current low levels for apartments with hotel occupancy rates likely to rise’ While the ULI Real Estate Consensus Forecast suggests that economic growth will be steady rather than sporadic, it must be •Rents are expected to increase for all property types, with viewed within the context of numerous risk factors including: 2012 increases ranging from 0.8% for retail up to 5.0% for the continuing impact of Europe’s debt crisis; the impact of the apartments; and upcoming presidential election in the U.S. and major elections overseas; and the complexities of tighter financial regulations in •Housing starts are anticipated to nearly double by 2014, with the U.S. and abroad. home prices beginning to rise in 2013, with an overall prices increase of 3.5% in 2014. The survey results suggest a marked increase in commercial real estate activity, with total transaction volume expected to rise from These strong projections are based on a promising outlook for the $250 billion in 2012 to $312 billion in 2014. CMBS issuance, a key overall economy. The survey showed real gross domestic product source of financing for commercial real estate, is expected to jump (GDP) expected to increase steadily from 2.5% in 2012 to 3% in from $40 billion in 2012 to $75 billion in 2014. CRE Finance World Summer 2012 62


CRE Finance World, Summer 2012
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