CRE Volume Up, Price Growth Down Through 2023, Predicts ULI
Price growth is expected to drop to 4.2% in 2021 and increase to 5% in 2022 and 5% in 2023.
Commercial real estate volume should go up, but price growth decline through 2023, predicts the Urban Land Institute.
Commercial real estate transaction volume is expected to recover relatively quickly through 2023 ($590 billion versus $500 billion in 2021). Last year, volume fell by almost 30% in 2020 to $427 billion from a post-Great Financial Crisis peak in 2019 of $598 billion. Expectations for CMBS issuance is $70 billion in 2021, rising to $85 billion in 2022 and $90 billion in 2023, both of which exceed the 20-year average of $82 billion.
However, commercial real estate price growth as measured by the RCA Commercial Property Price Index is expected to remain below 2020’s 5.2% for all three years, dropping to 4.2% in 2021 and increasing to 5% in 2022 and 5% in 2023.
Predictions in commercial property rent growth differs by property type.
In 2021, industrial and apartment rent growth is forecast to be 4% and 1.7%, respectively, while retail and office are forecast at -2%, and -2.9%, respectively.
In 2022, industrial and multifamily sectors continue growth at 3.7% and 3% respectively, while growth for retail and office is essentially flat.
By 2023, positive rental growth is forecast for all sectors, ranging from 3.1% for both the industrial and apartment sectors to 1.5% and 2% in the retail and office sectors, respectively.
ULI is seeing optimism coming for institutional-quality real estate investments after an 11-year-low figure of 1.6%.
Total returns are forecast to return by 2023 to the moderate rates of the years immediately before the pandemic. The forecast is for returns of 4.5%, 5.9% and 6.5%, in 2021, 2022 and 2023 respectively. By property type, 2021 returns are forecast to range from industrial’s 12% to retail’s -1%. In 2023, returns are forecast to range from industrial’s 8.2% to retail’s 5.2%. Hotel and industrial returns should strongly increase over the next three years, the group estimates.
From now through 2023, real estate transaction volumes, warehouse and apartment occupancy and rent growth, single-family housing starts, price appreciation GDP, employment growth should outpace long term averages, said William Maher, director of strategy and research, RCLCO.
ULI is predicting GDP will rise by 6.5% in 2021, up from a decline of 3.5% last year. In the coming year, the group expects it to climb 3.9% but increase at a lower 2.5% in 2023.
The forecasts are based on an April-May survey of 42 economists and analysts at 39 leading real estate organizations.