Urban Land Institute Unveils Real Estate Economic Forecast, Spring 2024

WASHINGTON, D.C. (April 9, 2024) - The Urban Land Institute (ULI) today released its Real Estate Economic Forecast Spring 2024, the semiannual industry survey unveiling data and trends in the real estate sector. In its 25th iteration, the survey indicates that in 2024, while the economy is strong, the real estate industry will continue to be challenged by high interest rates, which will continue to put downward pressure on valuations and returns in the near term. However, starting in 2025 and into 2026, the industry will begin to make up ground, showing upward growth and returns.

Real estate economists' sentiment regarding the U.S. economy has significantly improved in the past six months, buoyed by robust data and the absence of the long-anticipated slowdown. Responses from the latest semiannual ULI Real Estate Economic Forecast survey indicate a potential smooth landing for the economy. However, concerns persist over the real estate market's performance. Constraints within the capital market are projected to further suppress property values in the long term, impacting expected returns across various sectors. Nonetheless, most property types are anticipated to maintain relative health, with notable exceptions in the office sector.

Anita Kramer, Senior Vice President of ULI's Center for Real Estate Economics and Capital Markets, says "The forecast for 2024 reflects some caution, as capital market constraints are expected to continue to be a challenge for longer than previously anticipated, influencing return forecasts. Overall, though, the industry is poised for a slow and steady rise over the following two years."

The forecast is based on the median of forecasts from 39 economists and analysts at 34 leading real estate organizations exploring topics including rent growth across property types, declining treasury rates and movement in the housing construction sector. Respondents represent major real estate investment, advisory, and research firms and organizations.

Here are the top predictions from the ULI Real Estate Economic Forecast Spring 2024:

Economists are increasingly forecasting a soft landing and continued strength of the economy, which typically correlates with an increasing demand for space. Experts anticipate that the economy will grow significantly more in 2024 than forecasted six months ago, with projections for 2025 and 2026 at 1.7 percent and 2.0 percent, respectively. This is falling in line with what is typically seen historically.

However, elevated interest rates are projected to have a larger and more prolonged impact on commercial real estate than was expected six months ago. The MSCI Commercial Property Price Index is projected to decline 5.0 percent this year, more than expected, and increase just 2.0% in 2025, less than expected, before returning to its long-term average in 2026. Valuations are expected to decline more than anticipated, with projections indicating gradual improvement by 2026, although still below long-term averages. High vacancy rates persist, impacting returns.

Negative valuations are expected to put more downward pressure on returns for various types of properties compared to six months ago. Retail properties are anticipated to yield the highest returns over the forecast period, averaging 4.6 percent annually. Industrial and apartment properties are forecasted to have returns of 3.3 percent and 3.2 percent, respectively. Economists predict ongoing difficulties for the office sector, with an expected average annual return of less than 1.9% until 2026.

Rent growth will exhibit significant variation across different property types. The average annual rental growth for industrial properties is anticipated to lead the charge, with retail properties following closely behind, both exceeding their long-term average. However, forecasts for apartment rent growth will net out at 2.0 percent, falling short of their 20-year average. Office spaces are expected to continue to feel the impact of hybrid work, with rents projected to contract by an average of 1.1 percent annually.

The hotel industry has regained stability following the upheaval brought on by travel disruptions during the pandemic. Predictions suggest that occupancy rates will stay robust, experiencing slight growth annually into 2025 and 2026. Revenue per Available Room (RevPAR), which accounts for both rental rates and occupancy levels, will increase by an annual average of 3.8% from 2024 to 2026.

Housing construction remains strong, with single-family housing continuing to rise. Projections indicate that housing starts will surpass their historical average of 890,000 units, reaching 970,000 in 2024 - higher than previously forecasted - climbing to 1 million in 2025 and 1.1 million in 2026. Despite several years of significant growth in average home prices, the rate of increase will slow down.

Predictions for employment growth in 2024 followed an upward pattern, while projections for 2025 were adjusted downwards. The total cumulative employment growth for 2024-25 increased to 3.3 million in the Spring survey, up from 2.8 million in the Fall. It's anticipated that job growth will reach 1.75 million in 2026. Correspondingly, economists have lowered their forecasts for the unemployment rate, expecting it to rise in 2024 and 2025 before slightly decreasing in 2026.

Read the full ULI Real Estate Economic Forecast Spring 2024 survey on ULI's Knowledge Finder. For more information about this year's findings, contact [email protected].

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About the Urban Land Institute
The Urban Land Institute is a non-profit education and research institute supported by its members. Its mission is to shape the future of the built environment for transformative impact in communities worldwide. Established in 1936, the institute has more than 48,000 members worldwide representing all aspects of land use and development disciplines. For more information on ULI, please visit uli.org, or follow us on Twitter, Facebook, LinkedIn, and Instagram.

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