ULI Predicts Strengthening Real Estate Industry Starting In 2024

While inflation will remain an uncertain challenge, the Urban Land Institute’s latest Real Estate Economic Forecast projects positive but slower growth in the near term and a return to stronger growth in 2024.

The latest Real Estate Economic Forecast from the Urban Land Institute (ULI) projects positive but slower growth in the near term and a return to stronger growth in 2024, with inflation remaining a challenge of uncertainty.

“Even with overall slower growth in the near-term stemming from macro-economic conditions and pricing uncertainty, opportunities are rising in the real estate industry sectors including community and neighborhood retail centers, best-quality office, workforce housing, and single-family rentals,” said Ron Pressman, ULI’s Global CEO. “Additionally, strong fundamentals are expected to continue to support growth in the industrial and multifamily sector. Further, as the industry pivots to mitigating climate change risks, there are opportunities to bring cutting-edge buildings to market.”

Real Estate Industry
(Image: Urban Land Institute)

The Fall 2022 ULI Real Estate Economic Forecast is a consensus based on the median forecast from 43 economists and analysts at 37 major real estate investment, advisory, and research firms and organizations. It addresses 27 key economic and real estate indicators, ranging from GDP and employment figures to commercial real estate transactions and property sector performance. This fall’s survey was conducted between September 28 and October 12.

Insights from the semiannual Real Estate Economic Forecast include:

  • Commercial real estate transaction volume reached a historic high of $855 billion in 2021, almost double the low of $432 billion in 2020. Commercial real estate transaction volume is expected to drop sharply to $600 billion in 2022 and 2023 before rebounding to $750 billion in 2024.
  • Changes in vacancy and availability rates are expected to be minimal to moderate. Industrial availability and apartment vacancy will remain tight by historic standards over the forecast period, even with some moderate increase in apartment vacancies. Office vacancy rates are expected to stay elevated and rise moderately. Availability rates for neighborhood and community shopping centers are expected to tighten just a bit, reaching their lowest post-GFC rate, and remaining there throughout the forecast period.
  • The Economic Forecast projects a final 12-month Consumer Price Index (CPI) increase of 7.5 percent for 2022. However, increases in the CPI are expected to then retreat, declining to 4.0 percent in 2023 and to 2.6 percent in 2024.

Remote Work, Climate Change Impact Real Estate IndustryReal Estate Industry

Pandemic-related structural changes continue to be among the most significant factors impacting today’s real estate industry.
  • Total returns are expected to moderate to the long-term average of 9% in 2022, fall in 2023 to 3.8%, and strengthen in 2024 to 7.0% in 2024, still below the long-term average. By property type, 2022 returns are forecast to range from industrial’s 18.9% to office’s 2%. In 2024, returns are forecast to range from industrial’s 9.6% to office’s 4.1%.
  • Commercial property rent growth differs by property type. Industrial and apartment rent growth are both expected to be strongest in 2022 and then stay strong but moderate in the subsequent two years, with annual growth averaging 5.9% and 4.5%, respectively. Average annual retail rent growth is forecast at 1.7%, with a dip in 2023, and office rent growth is forecast at an annual average of 0.3%, with most growth occurring in 2024.
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