ULI Forecast: Transaction Volumes Poised to Bounce Back to Pre-Pandemic Levels


The Fall 2021 Urban Land Institute (ULI) Economic Forecast for 2021 to 2023 predicts that transaction volumes are poised to return to pre-pandemic levels.

WASHINGTON, D.C. — While the impact of the COVID-19 pandemic is still being felt across all sectors of commercial real estate, economists are forecasting strong recovery in the years ahead. 

This prediction comes from the Fall 2021 Urban Land Institute (ULI) Economic Forecast for 2021 to 2023. The semiannual survey polled 49 economists and analysts at 36 leading real estate organizations on 27 key economic and real estate indicators, ranging from GDP and employment figures to commercial real estate transactions and property sector performance.

US GDP shrank 3.4 percent in 2020 — the first economic contraction since 2009. Recovery from the pandemic is expected to occur dramatically faster than what transpired following the Great Recession of 2007-2009, according to Washington, D.C.-based ULI. A bounceback in growth of 5.7 percent is expected in 2021 with continued growth of 4 percent in 2022.

The U.S. economy recorded a net loss of 9.42 million jobs in 2020. Economists predict a two-year recovery process is imminent, with a growth of 6 million jobs in 2021 and 3.7 million jobs in 2022 for total growth marginally exceeding the jobs lost. Further growth of 2.2 million jobs is forecast in 2023. 

The inflation forecast  for 2021 has risen substantially from a projection by ULI of 2.8 percent this spring to 4.3 percent. Economists are optimistic about this spike receding rapidly to near 2019 levels in 2023.

Commercial real estate transaction volume reached $617 billion in 2019 — a post-great recession peak. Sales volume fell by 27 percent in 2020 to $453 billion — the lowest volume in seven years. Analysts expect volume to recover relatively quickly over the next few years, rising to $515 billion in 2021, $600 billion in 2022 and remaining at that level in 2023.

“The U.S. economy remains relatively attractive for real estate, especially in contrast with the period immediately following the global economic downturn in 2008 and 2009,” says Ed Walter, ULI Global CEO. 

“While prolonged high inflation could damage the viability of pipeline projects, the short-term spike predicted should have less impact. This is why we see transaction volumes recovering so quickly and investment returns for core property types looking so healthy. The real estate sector is in a strong position to build its way out of the pandemic and take the economy with it,” adds Walter.

Issuance of commercial mortgage-backed securities (CMBS) is likewise expected to rise almost to the 2019 peak of $98 billion, climbing from a forecast of $80 billion for 2021 to $95 billion for 2023, according to the report. 

Pricing and returns show a leap in expectations compared with ULI’s spring forecast. The RCA Commercial Property Price Index is now expected to see a peak of 10 percent in 2021, almost doubling the 5.3 percent growth seen in 2020 and the 4.2 percent forecast for 2021 this spring.

Total annual returns for equity REITs are forecast to rise to 27.8 percent in 2021, topping 2019’s performance of 26 percent. This forecast comes close to the 2014 peak of 30.1 percent and almost doubles ULI’s spring 2021 forecast of 15 percent. At 10 percent annually, the outlook for 2022 and 2023 falls closer to the 20-year average of 11.3 percent.

While the outlook is optimistic for most sectors of commercial real estate, the hospitality industry is still showing signs of struggle. Hotel revenue per available room (RevPAR) saw one of the starkest numbers in ULI’s presentation following a 47.4 percent fall recorded in 2020. Analysts forecast a peak of 12.2 percent in 2022 — decidedly lower than the 20 percent forecast made by ULI this spring.

With regard to  vacancy rates, the largest change is expected to be a rise of 200 basis points in the office sector in 2021 with only slight improvement by 2023, according to ULI. The high vacancy rate in the office sector in 2021 is reflected in a projected fall in rental rates of 1.5 percent. 

Industrial and multifamily sectors show healthier levels of rent growth, both with three-year forecasts peaking at 5 percent in 2021. For warehouses, this comes alongside a projection of relatively stable levels of availability.

Katie Sloan 

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