The commercial real estate industry
should see at least three more years of sustainable growth, based on a
combination of sound economic and property market fundamentals, according to a
survey of industry economists.
The forecast from the
Urban Land Institute (ULI) Center for Capital Markets and Real Estate, released
April 8, shows commercial real estate transaction volume rising to $470 billion
this year from $424 billion in 2014, an increase of 11 percent. Volume is
projected to climb to $500 billion in both 2016 and 2017, a 6 percent increase
from the forecast 2015 level.
The consensus of the 46 economists
surveyed was that improving vacancy and occupancy rates will drive “above
average rent growth in all commercial real estate sectors,” according to the
ULI report.
“A robust labor market benefits all
types of commercial property, and despite some monthly noise, job gains have
finally turned the corner,” said survey participant Calvin Schnure, NAREIT's
senior vice president for research and economic analysis. “2015 could mark an
inflection point for real estate, especially the office sector.”
According to the survey results,
total returns for institutional-quality direct real estate investments, as
measured by the National Council of Real Estate Investment Fiduciaries (NCREIF)
Property Index, are expected to average 9.9 percent in the period from 2015 to
2017. That compares with a projected average return of 3 percent for 10-Year
U.S. Treasury notes during the same period.
The economists estimate that
issuance of commercial mortgage-backed securities (CMBS) will total $115 billion in 2015, $133 billion in 2016
and $150 billion in 2017. In 2014, CMBS issuance was
$94 billion.
Real estate lending is expected to
remain competitive, according to the survey. “This is good news for the many
borrowers with loans coming due over the next three years,” said William Maher,
director of North American strategy for LaSalle Investment Management and a
survey participant.
Commercial real estate prices as
measured by the Moody’s/RCA Index are projected to rise by an average of 7.6
percent per year, compared with a long-term average increase of 5.3 percent, the
forecast noted.
Regarding market fundamentals,
vacancy rates, rental rates, total returns and product availability for most
commercial property sectors are expected to exceed or hold close to 20-year
averages for each category.
Warehouse rents and hotel revenue
per available room (RevPAR) are expected to be leaders among the major property
types, growing by an annual average of 3.6 percent and 5.3 percent respectively
in the 2015 to 2017 period.
In the office sector, the
forecast predicts that rental rates are forecast to rise by an annual average
of 2.5 percent in the 2015 to 2017 period, while retail rental rates are seen
rising an average of 2.6 percent annually in the same time frame. Apartment
rental rates are forecast to increase an average of 3.1 percent annually
between 2015 and 2017.
