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Real estate forecast: Expansion and solid growth through 2019

Experts tell the Urban Land Institute to expect steady, not spectacular, performance

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The next three years will bring continued economic expansion, with moderate employment growth and solid, but not spectacular, performance from the real estate industry, according to a new meta-analysis and forecast.

According to the Urban Land Institute’s annual Real Estate Economic Forecast, a survey of 48 of the industry’s top economists and analysts representing 34 leading real estate investment, advisory, and research firms, the near future is relatively bright for the real estate industry. Buoyed by increased business investment and corporate confidence, analysts predict 2 to 2.5 percent GDP growth over the next few years, with the unemployment rate expected to drop to 4.2 percent in 2018, the lowest rate since 2000.

During an afternoon press call introducing and discussing the report’s findings, some analysts suggested some worry about potential federal policies, noting that any restrictions on skilled immigration, as well as potential trade wars, might be risks, “self-inflicted wounds” impacting the economic cycle.

Key findings of the forecast include:

High-flying commercial sector will slow

After reaching a post-recession peak of $547 billion in commercial transaction in 2015, the commercial sector will continue to decline, hitting $414 billion in 2019. Despite the declines, however, these numbers are well above the 16-year average of $294 billion. Prices for this sector are projected to rise by an average of 4 percent per year over the next three years. One hesitation is the suburban office market; analysts suggested that, until millennials move to the suburbs in large numbers, the suburban office market won’t truly hit its stride.

Urban Land Institute

Single family home development inches up

After declines in new housing starts, construction of new homes will inch up over the next few years, hitting 960,000 by 2016. It’s a start in terms of building up the supply of starter homes, but that’s still below the 20-year average, suggesting continued difficulty for first-time homebuyers.

Industrial is on fire

Due in large part to growing demand for new data centers and the need for warehouses and logistics for e-commerce, driven in large part by Amazon’s growth, this sector will continue to expand. Forecasts find that 2017-2019 growth for this sector will average 3.7 percent, the highest of any sector.

Urban Land Institute

Apartment market stays tight

Even with a forecast for increased construction on new rental units, apartment inventory will remain in high demand. Vacancy rates are expected to bounce between 4.8 and 5.1 percent over the next three years, suggesting renters will continue to face higher rents, and likely shortages of affordable units. Trends in millennial living, and a “demographic tailwind,” suggest there will continue to be demand for increased rental units.