Urban Land Institute Projects Broad Economic, Real Estate Improvements in U.S.

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(Washington, DC) -- A new Urban Land Institute survey of 38 leading U.S. real estate economists and analysts projects broad improvements for America's economy, real estate capital markets, real estate fundamentals and the housing industry through 2014. The findings mark the start of a semi-annual survey of economists, the ULI Real Estate Consensus Forecast, being conducted by the ULI Center for Capital Markets and Real Estate.

The survey results, released March 28, show reason for optimism throughout much of the real estate industry. Over the next three years:

• Commercial property transaction volume is expected to increase by nearly 50 percent.

• Issuance of commercial mortgage-backed securities (CMBS) is expected to more than double.

• Institutional real estate assets and real estate investment trusts (REITs) are expected to provide returns ranging from 8.5-11 percent annually.

• Vacancy rates are expected to drop in a range of between 1.2 and 3.7 percentage points for office, retail, and industrial properties and remain stable at low levels for apartments; while hotel occupancy rates will likely rise.

• Rents are expected to increase for all property types, with 2012 increases ranging from 0.8 percent for retail up to 5.0 percent for apartments.

• Housing starts will nearly double by 2014, and home prices will begin to rise in 2013, with prices increasing by 3.5% in 2014

These strong projections are based on a promising outlook for the overall economy. The survey results show the real gross domestic product (GDP) is expected to rise steadily from 2.5 percent this year to 3 percent in 2013 to 3.2 percent by 2014; the nation's unemployment rate is expected to fall to 8.0 percent in 2012, 7.5 percent in 2013, and 6.9 percent by 2014; and the number of jobs created is expected to rise from an expected 2 million in 2012 to 2.5 million in 2013 to 2.75 million in 2014.

The improving economy, however, will likely lead to higher inflation and interest rates, which will raise the cost of borrowing for consumers and investors. For 2012, 2013 and 2014, inflation as measured by the Consumer Price Index (CPI) is expected to be 2.4 percent, 2.8 percent and 3.0 percent, respectively; and ten-year treasury rates will rise along with inflation, with a rate of 2.4 percent projected for 2012, 3.1 percent  for  2013, and 3.8 percent for 2014.

The survey, conducted during late February and early March, is a consensus view and reflects  the median forecast for 26 economic indicators, including property transaction volumes and issuance of commercial mortgage-backed securities; property investment returns, vacancy rates and rents for several property sectors; and housing starts and home prices. Comparisons are made on a year-by-year basis from 2009, when the nation was in the throes of recession, through 2014.

While the ULI Real Estate Consensus Forecast suggests that economic growth will be steady rather than sporadic, it must be viewed within the context of numerous risk factors such as the continuing impact of Europe's debt crisis; the impact of the upcoming presidential election in the U.S. and major elections overseas; and the complexities of tighter financial regulations in the U.S. and abroad, said ULI Chief Executive Officer Patrick L. Phillips.

"While geopolitical and global economic events could change the forecast going forward, what we see in this survey is confidence that the U.S. real estate economy has weathered the brunt of the recent financial storm and is poised for significant improvement over the next three year," Phillips added. "These results hold much promise for the real estate industry."

The survey results suggest a marked increase in commercial real estate activity, with total transaction volume   expected to rise from $250 billion in 2012 to $312 billion in 2014.  CBMS issuance, a key source of financing for commercial real estate, is expected to jump from $40 billion in 2012 to $75 billion in 2014 (a considerable increase from the recession's low point of $3 billion in 2009).