The GDP, which in 2020 contracted for the first time in 11 years, is expected to grow by 6.5% in 2021, and keep growing (albeit at a slower pace) in the proceeding two years. In 2021, the U.S. should recover about 60% of the 9.42 million jobs it lost last year, and pick up another 5.1 million jobs over the following two years. Consequently, the unemployment rate is expected to recede to 4% by the end of 2023, close to where it was pre-pandemic.
This economy and jobs picture, coupled with positive predictions about inflation, interest rates, and capitalization rates, sets the stage for the Urban Land Institute’s Real Estate Economic Forecast, released on May 19, which sees a sector poised to rebound, led by returns from single-family, hotel, and industrial assets. The biggest red flag is the office sector, whose national vacancy rates are expected to rise by a higher-than-usual three-year average, but to also recover starting in 2023.
The forecasts for 27 economic and real estate indicators, published in this report, ULI’s 19th, are derived from a survey this spring of 42 economists and analysts from 39 real estate organizations.
Commercial real estate should benefit from a strong economy through 2023. Graphic: ULI
Among the report’s notable findings are these:
• Commercial real estate transaction volume should recover quickly. It is expected to hit $500 billion this year and $550 billion next year. (The latest peak was $598 billion in 2019.) Commercial mortgage-backed securities issuance is projected at $70 billion this year, and to rise to $90 billion in 2023, exceeding the 20-year $82 billion average.
Transaction volume from real estate is expected to approach pre-pandemic levels again by 2023. Chart: ULI
• Price growth, as measured by the RCA Commercial Property Price Index, should remain below the 2020 level during all three proceeding years. The good news is that ULI is forecasting 5% increases in each of the next two years.
• Rent growth will be similarly volatile. Industrial rents will lead the pack with an average of 3.6% growth between 2021-2023. Multifamily rents will also rise, but office and retail rents are expected to stay in the negative column for a while.
As demand for industrial space increases, so will its rental rates. Charts: ULI
• The report looks at potential vacancy rates for five property types. Availability of warehouses and apartments is expected to remain below their 20-year averages over the next three years. Offices, on the other hand, will see vacancy rates rise to a three-year average of 16.2%, substantively above the sector’s 14.3% 20-year average. Retail vacancy rates, somewhat surprisingly, are projected to average 9.8%, below the sector’s 9.9% 20-year average.
The office sector will have high vacancy rates for at least the next two years. Chart: ULI
• Last year, housing starts exceeded their 20-year average for the first time since the 2008-10 financial crisis. They are expected to hit 1.1 million units this year, and 1.2 million in 2022 and 2023.
• Real estate returns, as measured by the National Council of Real Estate Investment Fiduciaries, are forecast at 4.5%, 5.9%, and 6.5%, respectively, for 2021-2023. Industrial should lead all property types, but even office and retail are projected to generate positive returns.
Related Stories
Apartments | Jun 27, 2023
Average U.S. apartment rent reached all-time high in May, at $1,716
Multifamily rents continued to increase through the first half of 2023, despite challenges for the sector and continuing economic uncertainty. But job growth has remained robust and new households keep forming, creating apartment demand and ongoing rent growth. The average U.S. apartment rent reached an all-time high of $1,716 in May.
Contractors | Jun 26, 2023
Most top U.S. contractors rarely deliver projects on time: new study
About 63% of leading U.S. contractors are delivering projects out of schedule, according to a survey of over 300 C-suite executives and owners in the construction industry by XYZ Reality. The study implies that the industry is struggling with significant backlogs due, in part, to avoidable defects, scan, and rework.
Industry Research | Jun 15, 2023
Exurbs and emerging suburbs having fastest population growth, says Cushman & Wakefield
Recently released county and metro-level population growth data by the U.S. Census Bureau shows that the fastest growing areas are found in exurbs and emerging suburbs.
Contractors | Jun 13, 2023
The average U.S. contractor has 8.9 months worth of construction work in the pipeline, as of May 2023
Associated Builders and Contractors reported that its Construction Backlog Indicator remained unchanged at 8.9 months in May, according to an ABC member survey conducted May 20 to June 7. The reading is 0.1 months lower than in May 2022. Backlog in the infrastructure category ticked up again and has now returned to May 2022 levels. On a regional basis, backlog increased in every region but the Northeast.
Industry Research | Jun 13, 2023
Two new surveys track how the construction industry, in the U.S. and globally, is navigating market disruption and volatility
The surveys, conducted by XYZ Reality and KPMG International, found greater willingness to embrace technology, workplace diversity, and ESG precepts.
| Jun 5, 2023
Communication is the key to AEC firms’ mental health programs and training
The core of recent awareness efforts—and their greatest challenge—is getting workers to come forward and share stories.
Mass Timber | Jun 2, 2023
First-of-its-kind shake test concludes mass timber’s seismic resilience
Last month, a 10-story mass timber structure underwent a seismic shake test on the largest shake table in the world.
Contractors | May 24, 2023
The average U.S. contractor has 8.9 months worth of construction work in the pipeline, as of April 2023
Contractor backlogs climbed slightly in April, from a seven-month low the previous month, according to Associated Builders and Contractors.
Multifamily Housing | May 23, 2023
One out of three office buildings in largest U.S. cities are suitable for residential conversion
Roughly one in three office buildings in the largest U.S. cities are well suited to be converted to multifamily residential properties, according to a study by global real estate firm Avison Young. Some 6,206 buildings across 10 U.S. cities present viable opportunities for conversion to residential use.
Industry Research | May 22, 2023
2023 High Growth Study shares tips for finding success in uncertain times
Lee Frederiksen, Managing Partner, Hinge, reveals key takeaways from the firm's recent High Growth study.
