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
Giants 400 | Sep 28, 2023
Top 100 University Building Construction Firms for 2023
Turner Construction, Whiting-Turner Contracting Co., STO Building Group, Suffolk Construction, and Skanska USA top BD+C's ranking of the nation's largest university sector contractors and construction management firms for 2023, as reported in Building Design+Construction's 2023 Giants 400 Report. Note: This ranking includes revenue for all university/college-related buildings except student residence halls, sports/recreation facilities, laboratories, S+T-related buildings, parking facilities, and performing arts centers (revenue for those buildings are reported in their respective Giants 400 ranking).
Construction Costs | Sep 28, 2023
U.S. construction market moves toward building material price stabilization
The newly released Quarterly Construction Cost Insights Report for Q3 2023 from Gordian reveals material costs remain high compared to prior years, but there is a move towards price stabilization for building and construction materials after years of significant fluctuations. In this report, top industry experts from Gordian, as well as from Gilbane, McCarthy Building Companies, and DPR Construction weigh in on the overall trends seen for construction material costs, and offer innovative solutions to navigate this terrain.
Multifamily Housing | Sep 26, 2023
Midwest metros see greatest rent increase in September 2023
While the median monthly price of rent has increased by 0.71% in August, the year-over-year estimates show a national change of -0.06 percent.
Data Centers | Sep 21, 2023
North American data center construction rises 25% to record high in first half of 2023, driven by growth of artificial intelligence
CBRE’s latest North American Data Center Trends Report found there is 2,287.6 megawatts (MW) of data center supply currently under construction in primary markets, reaching a new all-time high with more than 70% already preleased.
Data Centers | Sep 15, 2023
Power constraints are restricting data center market growth
There is record global demand for new data centers, but availability of power is hampering market growth. That’s one of the key findings from a new CBRE report: Global Data Center Trends 2023.
Contractors | Sep 12, 2023
The average U.S. contractor has 9.2 months worth of construction work in the pipeline, as of August 2023
Associated Builders and Contractors' Construction Backlog Indicator declined to 9.2 months in August, down 0.1 month, according to an ABC member survey conducted from Aug. 21 to Sept. 6. The reading is 0.5 months above the August 2022 level.
Contractors | Sep 11, 2023
Construction industry skills shortage is contributing to project delays
Relatively few candidates looking for work in the construction industry have the necessary skills to do the job well, according to a survey of construction industry managers by the Associated General Contractors of America (AGC) and Autodesk.
Giants 400 | Sep 5, 2023
Top 80 Construction Management Firms for 2023
Alfa Tech, CBRE Group, Skyline Construction, Hill International, and JLL top the rankings of the nation's largest construction management (as agent) and program/project management firms for nonresidential buildings and multifamily housing work, as reported in Building Design+Construction's 2023 Giants 400 Report.
Giants 400 | Sep 5, 2023
Top 150 Contractors for 2023
Turner Construction, STO Building Group, DPR Construction, Whiting-Turner Contracting Co., and Clark Group head the ranking of the nation's largest general contractors, CM at risk firms, and design-builders for nonresidential buildings and multifamily buildings work, as reported in Building Design+Construction's 2023 Giants 400 Report.
Giants 400 | Aug 31, 2023
Top 35 Engineering Architecture Firms for 2023
Jacobs, AECOM, Alfa Tech, Burns & McDonnell, and Ramboll top the rankings of the nation's largest engineering architecture (EA) firms for nonresidential buildings and multifamily buildings work, as reported in Building Design+Construction's 2023 Giants 400 Report.
