Moderate economic growth will support steady strengthening in U.S. commercial real estate capital markets and fundamentals during the next three years, resulting in solid but unspectacular returns for U.S. real estate investors, according to a report from the CoStar Group on the newest Urban Land Institute/EY Real Estate Consensus Forecast.
The forecast, which is based on a survey of 43 experts representing 32 of the nation’s top real estate investment, advisory and research firms, sees a slightly more rosy future for commercial property transaction volume and pricing, multifamily fundamentals and returns on institutional commercial real estate properties than did the April forecast.
The U.S. commercial real estate experts polled for the survey voiced apprehension regarding recent economic developments, including this week’s equities market selloff, the decline in oil prices and nervousness over global economic growth, CoStar said. But the broader forecast for U.S. commercial real estate sectors overall was positive.
CoStar’s reported key findings from the forecast include:
— U.S. commercial property transaction volume is predicted to grow, but at a declining rate. Volume will reach $445 by 2016, surpassing the second highest pre-recession annual volume reached in 2006.
— CMBS issuance will continue to grow, but at a more moderate rate, rising 43% by 2016, as compared to its nearly 80% increase in 2013.
— Look for returns of 11 percent on institutional real estate assets in 2014, moderating to 8.5% per year by 2016.
— U.S. commercial property prices are forecast to grow 10% this year, then slow to 6% in 2015 and 5% in 2016.
— Office, retail and industrial property vacancy rates will show a modest decline, but vacancy rates for apartments will rise. Continued improvement in hotel occupancy rates are predicted.
— Rents for the four major U.S. commercial property types are predicted to rise. Increases in 2014 will range from 2% growth rate for retail space to 4% for industrial space. Rents will jump by 4% for office space in 2016 and by 3% for all other property types.
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