Real Estate Economic Forecast is Rather “Meh” About Real Estate

It’s not too cold… but it’s certainly not too hot

The Real Estate Economic Forecast – authored by Urban Land institute – hit the street today.

It’s not as bad as we might have expected.

The survey offers a consensus forecast of 41 economists and analysts at 32 leading real estate organizations.

The researchers are not wildly optimistic about the short-term outlook. However, they have yet to turn negative on prospects for the economy and commercial real estate markets.

Economists and analysts suggest that “Continued economic expansion over the three forecast years, with growth moderating over that period. For example, GDP growth is forecast at 2.3% in ’19, above the long-term average, but is expected to fall below the long-term average of 2.2% in ‘19 and ’20. Employment growth is forecast to remain above the long-term average throughout the forecast period, but moderate to 1.50 million by 2021, which would be the lowest employment gain since 2010.”

In agreement with the current view of the world, the respondents don’t expect much change in interest rates over the next three years.

The report reads: “The 10-year treasury rate has remained below the 20-year average of 3.5% for 9 years and is also expected to remain so over the forecast period. The ten-year treasury rate was 2.7% year-end ’18; it is expected to fall to 1.8% by year-end ‘19 before ticking up to 2.0% in ‘20 and 2.3% in ‘21.”

This analysis is a decent backdrop for real estate investing.

Survey Results from the Real Estate Economic Forecast

The survey notes:

  • Commercial real estate prices are projected to grow at slowing rates relative to recent years, at 5.1% in ‘19, 4.0% in ’20, and 3.9% in ’21. The forecast says the latter two years will fall below the long-term average growth rate of 4.3% for the first time since 2010.
  • Institutional real estate assets are set to provide total returns of 6.0% in ‘19, moderating to 5.2% in ‘20 and 5.5% in ‘21.
  • By property type, 2019 returns are forecast to range from industrial’s 11.0% to retail’s 2.9%. In ‘21, returns are forecast to range from industrial’s 7.1% to retail’s 3.0%.”
  • Equity REITs had a tough 2018 with their first negative returns since 2008.

Those analysts surveyed think it will get better: “Future returns are expected to return to positive throughout the forecast period, at 15.0% in ’19, 6.3% in ‘20, and 8.0% in ’21.”

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