Real Estate to Continue Improving, Economists Predict


Real estate experts have high expectations for residential and commercial real estate, says the Urban Land Institute and Ernst Young.

Economists and analysts from nearly 40 of the country’s leading real estate organizations say there will be continued improvement in residential real estate, commercial mortgage-backed securities and industrial sectors.

Over the next three years, the respondents expect:

* A continued rally is expected for the housing sector, with forecasters projecting a strong ending to 2013 and continued growth in 2014 and 2015.

Single-family housing starts, which hovered at half-century lows between 2009 and 2011, are expected to end 2012 at 535,300 units. Forecasters predict these numbers will continue rising and reach 675,000 units in 2013, 800,000 units in 2014 and 900,000 units in 2015.

* CMBS issuance, a key source of financing for commercial real estate, is projected to increase by more than 100% over three years. Forecast respondents expect CMBS issuances to jump from $48 billion in 2012 to $75 billion in 2013, then rise to $88 billion in 2014 and $100 billion in 2015.

* Total returns for equity real estate investment trusts are expected to drop dramatically, from 18.1% in 2012 to 4% in 2013, before recovering to a modest 8% in both 2014 and 2015, as tracked by the National Association of Real Estate Investment Trusts.

* The outlook for employment is positive, with respondents expecting the unemployment rate to fall to 7.2% by the end of 2013, 6.8% by the end of 2014, and 6.3% by the end of 2015. At the same time, the expectation is that 2.2 million jobs will be created in 2013, followed by 2.4 million more jobs in 2014 and 2.6 million more in 2015.

“Real estate investors anticipate that the improving U.S. economy will continue to help strengthen real estate markets,” said Howard Roth, EY’s global real estate leader. “The results (of the survey) are truly promising for commercial real estate and housing sectors, showing increasing confidence going forward.”

But Anita Kramer, vice president of the ULI Center for Capital Markets and Real Estate, threw out a warning that even though the survey reflects the current sentiment among leading real estate investors, industry opinion could change since respondents were polled before the shutdown of the federal government.

The survey was conducted by ULI’s capital markets center between Aug. 27 and Sept. 13 to provide forecasts for broad economic indicators, real estate capital markets, property investment returns for four property types, vacancy rates and rents for five property types, as well as housing starts and prices.

The forecast predicts higher rents for all four major commercial property sectors in 2013, with projections ranging from 0.2% for retail to 3.3% for industrial.

Another key benchmark, vacancy rates, is expected to decrease modestly for office and retail properties. Office vacancy rates, which remained at 16.5% in 2009 and 2010, began to decline in 2011 and 2012. Rental rates for office properties are expected to continue strengthening, by 2% in 2013, 3.1% in 2014 and 4% in 2015.

In the apartment sector, which has performed well over the past two years, vacancy rates are expected to decline to 4.9% by the end of 2013 and then rise to 5.2% by 2015. Also, while apartments are expected to continue showing consistent rental rate growth, the rate of growth is expected to decelerate.

Lew Sichelman is an independent journalist who has been covering the housing and mortgage markets for more than 40 years.

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