ULI Forecast: Property Transaction Volume to Decline Nationally Over Next Three Years

WASHINGTON — U.S. commercial property transaction volume is expected to decline over the next three years to $475 billion in 2018, according to a new economic forecast from the Urban Land Institute (ULI) Center for Capital Markets and Real Estate.

The latest ULI Real Estate Consensus Forecast, a semi-annual outlook, is based on a survey of 48 of the industry’s top economists and analysts representing 36 of the country’s leading real estate investment, advisory and research firms and organizations.

The survey provides forecasts on broad economic indicators such as real estate capital markets, property investment returns, vacancy and rental rates and housing starts and prices.

The recently released consensus forecast calls for continued economic expansion over the next three years, but at a somewhat slower pace than the prior two years. It also anticipates continued commercial price appreciation and positive returns, but at more subdued and decelerating rates, and above average but decelerating rent growth rates in all property sectors.

“Compared to six months ago, real estate researchers are predicting slower economic growth, slipping real estate fundamentals and lower returns from both the public and private markets,” says William Maher, ULI leader, survey participant and director of North American strategy for LaSalle Investment Management.

“As was the case six months ago, there is no imminent downturn on the horizon, although global economies and markets remain fragile and volatile,” he adds.

What follows is the forecast for the five main property types.


The forecast calls for the national office vacancy rate to decline to 12.6 percent in 2016 and 12.3 percent in 2017. The office vacancy rate is expected to plateau in 2018 at 12.3 percent.

Office rental rates increased 4 percent in 2015. Rental rate growth is expected to continue at 4 percent this year and then moderate to 3.5 percent in 2017 and 3 percent in 2018. Still, the forecast is for rental rates to remain above the 20-year average.


Vacancy rates for the apartment sector are expected to increase slightly over the next three years to 4.9 percent in 2016, 5.2 percent in 2017 and 5.4 percent in 2018.

Apartment rental rate growth is expected to moderate in 2016 and 2017 to 3.6 percent and 3 percent, respectively, but remain above the 20-year average growth rate of 2.8 percent. Rent growth is expected to dip below the long-term average in 2018, to 2.4 percent.

Compared with six months ago, the projected apartment vacancy rates for 2016 and 2017 are slightly higher, and the forecasted rental rate changes are about the same.


The recent real estate consensus forecast anticipates continued improvement in retail availability rates over the next two years, with year-end availability rates expected to decline to 10.9 percent this year and 10.7 percent by 2017. Availability rates are expected to plateau at 10.7 percent in 2018. All these rates remain above the 20-year average.

The forecast for retail rental rates calls for growth at a rate that exceeds the 20-year average for the first time in eight years — at 2 percent in both 2016 and 2017 and 1.7 percent in 2018. Compared with six months ago, the forecasts of availability rates and rental rate growth for 2016 and 2017 are less optimistic.


The industrial/warehouse availability rate is expected to continue to decline in 2016, with the year-end vacancy rate at 9.2 percent. Availability rates are forecast to inch up in 2017 and 2018, but remain below the long-term average.

Survey respondents predict healthy but moderating rental rate growth with increases of 4.5 percent in 2016, 3 percent in 2017, and 2.7 percent in 2018. These forecasts are all above the 20-year average growth rate. The forecasts for industrial/warehouse availability rates and rental growth rates in 2016 and 2017 are all more optimistic than the consensus forecast of six months ago.


Respondents to the recent real estate consensus forecast predict occupancy rates to remain strong over the next three years, with some minor fluctuations: 65.8 percent in 2016, 65.5 percent in 2017 and 65.2 percent in 2018.

Following six years of above average growth, revenue per available room (RevPAR) is expected to begin moderating over the next three years, staying at 4.6 percent this year, which is above the long-term average, but falling below the long-term average to 3 percent by 2018.

Other Findings

The ULI real estate consensus forecast also notes that the issuance of commercial mortgage-backed securities (CMBS) is expected to decline in 2016 to $85 billion and then return to $100 billion in both 2017 and 2018.

Commercial real estate prices overall are projected to grow, but at subdued and slowing rates over the next three years, at 5 percent in 2016, 2.7 percent in 2017 and 3 percent in 2018, all below the long-term average growth rate of 5.8 percent.

Content Partners
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