New US Industry Forecast From ULI, Ernst & Young Projects Rally in Real Estate Capital Markets and Strong Growth in Housing Sector Through 2015

ULI/E&Y Real Estate Consensus Forecast is Based on Survey of 38 Leading Economists, Analysts

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Trish Riggs, 202-624-7086
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WASHINGTON (April 10, 2013) – A new U.S.-focused real estate forecast from the Urban Land Institute and Ernst & Young reflects renewed optimism for growth in real estate capital markets and commercial real estate fundamentals, and even stronger expectations for housing than those made just six months ago.

The findings, based on a survey of 38 of the nation’s leading real estate economists and analysts, were released today in the semi-annual ULI/E&Y Real Estate Consensus Forecast, prepared by the ULI Center for Capital Markets and Real Estate. The survey, conducted between March 4 and March 25, 2013, is the third in a series of polls initiated to gauge sentiment among economists and analysts about the direction of the real estate industry.

Predictions for commercial real estate activity improved significantly from the last survey, conducted in September 2012. Transaction volume in 2013 is expected to rise to $310 billion from $290 billion in 2012, then rise to $340 billion in 2014 and $360 billion in 2015. The issuance of commercial mortgage-backed securities (CMBS), a key source of financing for commercial real estate, is expected to jump by nearly 50 percent this year, rising to $70 billion from $48 billion in 2012. In 2014, CMBS issuance is expected to reach $80 billion; in 2015, $100 billion.

Total returns for equity real estate investment trusts (REITs), as tracked by the National Association of Real Estate Investment Trusts, are expected to be 12 percent in 2013, then moderate to 10 percent for 2014 and 8.0 percent for 2015. While these reflect a sharp decline from the surging REIT returns of 28 percent in both 2009 and 2010, the forecast suggests that REIT returns are settling at a more sustainable level.
Total annual returns from institutional-quality direct real estate investments for the apartment, retail, industrial and office sectors combined are forecast to be 9.5 percent in 2013, 9.0 percent in 2014 and 8.0 percent in 2015, continuing a downward trend that started last year, but remaining in the range of long-term historical averages.

Steady Improvement Expected
The projections for real estate are based on a generally favorable outlook for the economy; steady improvement is anticipated for both economic growth and employment. According to the latest forecast, the real gross domestic product (GDP) is expected to rise by 2 percent this year, by 3 percent in 2014, and then rise by 3.1 percent in 2015; while the nation’s unemployment rate is expected to drop to 7.5 percent by the end of the year, then slip further to 7.0 percent by the end of 2014 and to 6.5 percent by the end of 2015. The number of jobs created is expected to rise by 2.1 million in 2013, 2.4 million in 2014 and 2.6 million in 2015. All of these forecasts are more optimistic than those in the September 2012 survey.

“The survey suggests that despite some tapering off of price increases and returns, the commercial real estate industry will, in general, be on solid footing for the next three years,” said ULI Senior Vice President Dean Schwanke, executive director of the ULI Center for Capital Markets and Real Estate. “After a prolonged period of uncertainty, we’re seeing a revival of investor confidence as the economy continues to recover.”

Howard Roth, Ernst & Young’s global real estate leader, points out that although the U.S. real estate market still has some way to go, it is certainly pointed in the right direction and is very likely to continue attracting investors. “Institutional global capital is searching for a home that provides the best risk adjusted return, without regard for borders. As the consensus of the economists participating in our survey confirms, the U.S. capital markets, the housing sector, and commercial real estate fundamentals are clearly improving, trends which we believe places the U.S. real estate sector squarely in the sights of global investors for the foreseeable future,” said Roth.

Single Family Values and Inflation Both Expected to Rise
The March survey reinforces the current optimism regarding the single-family housing industry. Single-family housing starts, which reached near-record lows over between 2009 and 2011, are projected to reach 700,000 in 2013 (up from 535,300 in 2012), and then rise to 900,000 in 2014, and 1.013 million in 2015. The national average home price is expected to rise by 6.0 percent this year, then slip to 5.3 percent in 2014 and 5.0 percent in 2015, staying at a level that, despite the moderation, is well above previous projections. This reflects signs of a solid housing recovery, as buyers, sensing a turning point, return to the market.

The forecast anticipates an increase in inflation and interest rates as the economy continues to improve. For 2013, it predicts that the Consumer Price Index (CPI) will increase to 2.0 percent, then rise to 2.5 percent in 2014 and 2.9 percent by the end of 2015. Ten-year treasury rates are projected to rise to 2.3 percent by the end of 2013, 3.0 percent in 2014, and 3.5 percent in 2015. The report points out that while rising rates will increase borrowing costs for real estate investors, the higher costs are not expected to have a significant impact on real estate capitalization rates, which bodes well for commercial real estate values.

Commercial Property Expectations Mixed
The report anticipates that despite some cooling in the apartment sector, that property type will be the leader for 2013 in terms of returns. Apartment sector returns are expected to be10.0 percent this year, a return that is consistent with the returns projected for other commercial property types in 2013 – industrial, 9.9 percent; office, 9.0 percent; and retail, also at 9.0 percent. Returns for all sectors are expected to decline slightly by 2015; the largest drop will be seen in the apartment sector, as supply catches up with demand.

  • Apartments – The forecast predicts that vacancy rates will hold at 5.0 percent this year from 2012, then edge up to 5.2 percent in 2014 and stay at that point in 2015. This year, rental growth rates are expected to be 3.8 percent, down from 4.1 percent in 2012. Rental growth rates are expected to decline to 3.0 percent in 2014 and 2.8 percent in 2015, as more units are placed on the market.
  • Industrial/warehouse — Vacancy rates are expected to continue declining, reaching 12.2 percent by the end of 2013, 11.7 percent in 2014, and 11.4 percent by the end of 2015. Warehouse rental rates are expected to show growing strength, with an increase of 2.0 percent anticipated for 2013, and 3.0 percent in 2014 and 2015.
  • Office – Office vacancy rates are expected to drop to 14.8 percent in 2013, 14.1 in 2014, and 13.6 percent in 2015. Office rental rate rates are expected to decline by 3.5 percent for 2013, and then rise by 4.0 percent for both 2014 and 2015.
  • Retail – Retail availability rates are expected to decline to 12.5 percent this year, then drop further to 12.2 percent in 2014 and 11.9 percent by 2015, reflecting modest improvements as the economy improves and consumer spending increases. Retail rental rates are projected to rise by 1.0 percent in 2013, and by 2.0 percent in 2014 and 2015.

The ULI/E&Y Real Estate Consensus Forecast reflects consensus reached on 27 economic and real estate indicators; the forecast for each indicator is the median forecast from the 38 survey respondents. Comparisons are made on a year-by-year basis from 2009 through 2015. The next forecast is scheduled for release during October 2013.

NOTE TO REPORTERS AND EDITORS: The survey results were discussed today during a ULI webinar featuring ULI Senior Vice President Dean Schwanke, executive director of the ULI Center for Capital Markets, Washington, D.C.; Howard Roth, global real estate leader, Ernst & Young, New York City; Suzanne Mulvee, director of research, Retail, Property and Portfolio Research, Boston; Kevin J. Thorpe, chief economist and principal, Cassidy Turley, Washington, D.C.; and Craig Thomas, vice president of market research, AvalonBay Communities, Inc., Arlington, Va. To interview the webinar participants, view the archived version of the webinar, or request a report of the survey results, contact Robert Krueger, ULI communications and social media manager, at 202-624-7051;

NOTE TO ULI MEMBERS: ULI members can obtain a copy of the report and request access to the archived version of the webinar by contacting customer service at 1-800-321-5011 or

About the Urban Land Institute
The Urban Land Institute ( is a nonprofit education and research institute supported by its members. Its mission is to provide leadership in the responsible use of land and in sustaining and creating thriving communities worldwide. Established in 1936, the Institute has nearly 30,000 members representing all aspects of land use and development disciplines.

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