The survey of 38 leading real estate economists and analysts from across the United States was conducted by the new Urban Land Institute.
It projects broad improvements for the nations economy, real estate capital markets, real estate fundamentals and the housing industry through 2014.
Results show reason for optimism throughout much of the real estate industry. Over the next three years:
Commercial property transaction volume is expected to increase by nearly 50 percent.
Issuance of commercial mortgage-backed securities (CMBS) is expected to more than double.
Institutional real estate assets and real estate investment trusts (REITs) are expected to provide returns ranging from 8.5% to 11% annually.
Vacancy rates are expected to drop in a range of between 1.2 and 3.7 percentage points for office, retail, and industrial properties and remain stable at low levels for apartments; while hotel occupancy rates will likely rise.
Rents are expected to increase for all property types, with 2012 increases ranging from 0.8 percent for retail up to 5.0 percent for apartments.
Housing starts will nearly double by 2014, and home prices will begin to rise in 2013, with prices increasing by 3.5% in 2014.
These strong projections are based on a promising outlook for the overall economy. The survey results show the real gross domestic product (GDP) is expected to rise steadily from 2.5 percent this year to 3 percent in 2013 to 3.2 percent by 2014; the nations unemployment rate is expected to fall to 8.0 percent in 2012, 7.5 percent in 2013, and 6.9 percent by 2014; and the number of jobs created is expected to rise from and expected 2 million in 2012 to 2.5 million in 2013 to 2.75 million in 2014.
The improving economy, however, will likely lead to higher inflation and interest rates, which will raise the cost of borrowing for consumers and investors. For 2012, 2013 and 2014, inflation as measured by the Consumer Price Index (CPI) is expected to be 2.4 percent, 2.8 percent and 3.0 percent, respectively; and ten-year treasury rates will rise along with inflation, with a rate of 2.4 percent projected for 2012, 3.1 percent for 2013, and 3.8 percent for 2014.
Total returns for equity REITs are expected to be 10 percent in 2012, 9 percent in 2013 and 8.5 percent in 2014, a sharp decrease from the surging REIT returns of 28 percent in both 2009 and 2010, but settling closer to the more sustainable level seen in 2011.Total returns for institutional-quality real estate assets, as measured by the National Council of Real Estate Investment Fiduciaries Property Index, have also been strong over the past two years and these returns are expected to remain healthy, providing returns of 11% in 2012, 9.5% in 2013, and 8.5% in 2014.
Commercial real estate returns for institutional quality and REIT assets have performed very well in recent years, and this performance is expected to remain strong but trend lower over the next three years, said Dean Schwanke, executive director of the ULI Center for Capital Markets and Real Estate.
A slight cooling trend in the apartment sector ” the investors darling for the past two years ” is seen in the survey results, with other property types projected to gain momentum over the next two years. By property type, total returns for institutional quality assets in 2012 are expected to be strongest for apartments, at 12.1 percent; followed by industrial, at 11.5 percent; office, at 10.8 percent; and retail, at 10 percent. By 2014, however, returns are expected to be strongest for office, at 10 percent, and industrial, at 10 percent; followed by apartments at 8.8 percent and retail at 8.5 percent.
The forecast predicts a modest increase in apartment vacancy rates, from 5 percent this year to 5.1 percent in 2013 to 5.3 percent in 2014; and a decrease in rental growth rates, with rents expected to grow by 5 percent this year, and then moderate to a growth rate of 4.0 percent for 2013 and 3.8 percent by 2014. This may be indicative of supply catching up with demand.
The next ULI Real Estate Consensus Forecast is scheduled for release in September 2012.
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