The latest economic forecast by the Urban Land Institute sees the glass half-full for U.S. real estate growth. The forecast is based on a survey of 48 industry experts from investment, advisory and research firms.
The consensus shows that real estate growth will continue through 2017, but there are a few caveats. To bottom-line it, there are four sectors where price gains, market activity and equity values are expected to be softer when compared to 20-year averages:
- Commercial property price growth
- Equity REIT returns
- Retail availability rates
- Single-family housing starts
It should be reiterated that these sectors are expected to remain in positive territory, but their future performance may lag behind 20-year averages. This is not an economic show-stopper; it simply means that while our real estate recovery is alive and well, some indicators remain behind historical long-term norms.
For example, single-family housing starts are projected to increase to 842,000 in 2016, and 900,000 in 2017, but still remain below the 20-year average. Meanwhile, home price increases are expected to slow from 5% in 2015, to 4.3% in 2016, and to 3.9% in 2017.
Here are other projections from the Urban Land Institute:
- Commercial property transaction volume is predicted to rise through 2016, and level off to moderate activity by 2017.
- Commercial real estate prices are projected to rise by 10% in 2015 and then slow to a 6% increase in 2016, before landing near 4.5% in 2017.
- Vacancy rates are projected to decrease slightly for office and retail over the next 3 years.
- Office vacancy rates will decline to 13.3% in 2015, 12.7% in 2016, and 12.3% by the end of 2017.
- Retail vacancy rates are expected to decline to 11.1% by 2015, 10.7% by 2016, and 10.4% by 2017.
ULI’s projections show office rental rate increases holding steady at 4% per year through 2017. Retail space rental rates will gradually increase by 1.5% in 2015, to 2.8% by 2017. Again, these levels are behind 20-year benchmarks, but the numbers are in the right direction for commercial investors.
The Boston Metro area can be expected to perform somewhat better than ULI’s projected national averages. Currently, Boston Metro office rent is up by 4.8% during 2015, while office rents nationally are averaging a 3.3% increase. Boston is also experiencing better job growth compared to national levels, thanks to the magnet of our highly-educated workforce. Meanwhile, our commercial real estate continues to draw global investment. The next three years should bring continued growth in our market activity, though some moderation in price gains could be possible.
It’s important to note that commercial real estate is highly localized, and within the Boston Metro there are varying degrees of vacancy rates, rental costs and commercial property prices. Economic forecasts are interesting, but they are not infallible. This is why the guidance of an experienced commercial real estate broker is so important!
When it comes to finding Boston Metro commercial real estate for your business purposes, there’s no substitute for an experienced commercial real estate broker who understands the market! Whether you are thinking of buying or leasing, we can help you find the ideal property. Please contact us today for expert guidance!