16B — April 24 - May 14, 2015 — Green Buildings — M id A tlantic
Real Estate Journal
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G reen B uildings
Economy sees three years of continued strength New Urban Land Institute Forecast For Real Estate
to remain on a sustainable course of sol- id growth for 2015 through 2017, accord- ing to a new t h r e e - y e a r forecast from the Urban W
expected to rise to $150 billion in 2017 (rising from $115 bil- lion in 2015 and $133 billion in 2016). With banks and in- surance companies also active, real estate lending will remain competitive and favorable for borrowers. “This is good news for the many borrowers with loans coming due over the next three years,” Maher notes. • Commercial real estate prices as measured by the Moody’s/RCA Index are pro- jected to rise by an average of 7.6% per year, compared to a long term average increase of 5.3%, implying three very
strong years of net appreciation for U.S. real estate. • Warehouse rents and hotel revenue per available room (RevPAR) are expected to be leaders among the major prop- erty types, growing by an aver- age of 3.6% and 5.3% over the three year period -- well ahead of their historical growth rates. • The total return rate for core unleveraged properties as measured by the National Council of Real Estate Invest- ment Fiduciaries is projected to average 9.9% during 2015- 2017, which is significantly higher than the expected aver- age yield for U.S. Treasuries. Mayer points to some areas of concern, including the likeli- hood of higher short-term rates squeezing investment returns and causing an increase in capitalization rates. For in- stance, respondents expect the NCREIF capitalization rate to rise steadily from 5.3% in 2015 to 5.9% by 2017, which is “consistent with higher inter- est rates and borrowing costs,” he notes. Still, the findings suggest more reasons for hope than worry, he said. “In summary, almost all U.S. real estate participants would be very pleased if the future unfolded as predicted by the ULI consen- sus forecast,” Mayer said. “The forecast represents almost the perfect combination of strong economic and property market fundamentals, combined with an orderly wind-down of mon- etary stimulus.” Although the potential exists for progress to be hampered by obstacles such as economic downturns, foreign crises, interest rate spikes, or oversupplies, “real estate pros predict three more years of smooth sailing for U.S. real estate,” he said. In general, the performance of most commercial property sectors, as measured by va- cancy rates, rental rates, total returns, and product availabil- ity is expected to exceed or hold close to the 20-year (1995-2014) averages for each category. ULI is a nonprofit educa- tion and research institute supported by its members. Its mission is to provide leadership in the responsible use of land and in sustaining and creating thriving communities world- wide. Established in 1936, the Institute has more than 34,000 members representing all as- pects of land use and develop- ment disciplines. n
Forecast -- is based on a sur- vey of 43 of the industry’s top economists and analysts rep- resenting 32 of the country’s leading real estate investment, advisory, and research firms and organizations. An analysis of the survey findings by ULI leader Wil- liam Maher , director of North American strategy for LaSalle Investment Management in Baltimore, highlights areas of the industry and overall economy that are generating the most optimism for 2015 through 2017: • Net job growth is expected
to be 2.9 million per year, compared to a long term aver- age of 1.2 million. Demand for real estate, particularly office and apartments, will remain strong. Low unemployment rates should lead to healthy wage growth, although short- ages of skilled workers may surface. • The rate for 10-Year U.S. Treasury notes will average 3% over the three-year period, lower than the long term aver- age of 4.1%, but rising signifi- cantly over the forecast period. • Issuance of commercial mortgage-backed securities is
ASHINGTON , DC — The real estate industry is expected
William Maher
Land Institute (ULI) Center for Capital Markets and Real Estate. The outlook – the latest installment of the semi-annual ULI Real Estate Consensus
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