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September 27, 2012

ULI Survey Scales Back Commercial Real Estate Predictions

By Keith Loria, Contributing Editor

The Urban Land Institute released findings from its second semi-annual survey of the nation’s leading real estate economists and analysts on Wednesday, Sept. 26, and predicted less than hoped for commercial real estate sales in the next three years.

The Real Estate Consensus Forecast surveyed 39 economists and analysts over the period of Aug. 21 to Sept. 14 and examined 26 economic and real estate indicators.

The findings forecasted that properties, such as office buildings, shopping centers and warehouses, will amount to approximately $223 billion in sales this year, $250 billion next year and $275 billion in 2014. That’s down 12 percent from its original estimate from six months ago.

“The predictions diverge from the previous Forecast (from March) in that it is generally less optimistic regarding the economy and the performance of commercial real estate, and more optimistic regarding the single-family housing sector,” said Dean Schwanke, executive director, ULI Center for Capital Markets and Real Estate, Washington, D.C. “Commercial property transaction volume is expected to increase by 21 percent in 2013; the projection was for a 50 percent increase.”

Findings show that vacancy rates are expected to moderately decline for office, retail, and industrial properties and remain stable at low levels for apartments. Meanwhile, hotel occupancy rates are expected to improve.

Office vacancy rates, which remain high and have declined only slightly in recent years, are expected to decline from 16 percent at the end of 2011 to 15.5 percent in 2012, 14.8 percent in 2013 and 14 percent by the end of 2014.

Retail vacancy rates remain high, but should see some modest improvements over the next three years, with rates expected to decline to 12.9 percent by the end of 2012, 12.5 percent by 2013 and 12.2 percent by 2014, similar to the numbers in the March forecast.

The report further shows that the issuance of commercial mortgage-backed securities, a key source of financing for commercial real estate, is expected to rise marginally to $35 billion in 2012 from $33 billion in 2011, before rising to $45 billion in 2013, and then $60 billion in 2014.

Turning to the economy, the survey predicts employment will increase by 1.8 million jobs in 2012, 2.0 million in 2013 and 2.4 million in 2014. These numbers are also down from the last forecast, which projected 2.5 million new jobs in 2013.

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