ULI Sees CRE Correction on the Horizon

The Urban Land Institute’s newest Consensus Report says that the recent commercial real estate boom might wane a bit over the next few years.

The organization is still predicting growth, but it just might be slower than what we have seen since 2015. GDP expansion, which ULI has said grew by 2.4 percent last year and the prior 12 months, is only expected to shoot up 2.2 percent in 2016, and a bit more in 2017.

Meanwhile, the unemployment rate is forecast to keep decreasing. At five percent last year, there are expectations that it will dip to 4.8 percent in 2016, and drop to 4.7 percent the year after that.

Some more good partial good news: CMBS activity could decrease this year, but ULI sees it shooting up in 2017, from $85 billion, to $100 billion.

Another good metric: While commercial real estate transactions are expected to drop from $534 billion in 2015, to $525 billion this year, it is still above 2006 levels, before the recession dropped on the industry.

But then again, the National Council of Real Estate Investment (NCREIF) predicts that commercial real estate investments will fall on returns this year, from 13.3 percent last year, to 8.1 percent in 2016, but that’s not that bad of a return compared to other potential ways to put money into options.

Industrial returns are expected to jump 9.3 percent from the prior year, while office is expected to shoot up by nine percent. The multifamily sector, which has been on a crazy run, is only forecasted to jump 8.3 percent, while retail’s horizon looks like it will be at an eight-percent return.

It’s a lot of information to absorb, but though the bounce-back growth we have seen over the last few years will be tempered a bit, according to the ULI report.

Bottom line: There is still no reason to think that investors aren’t making the right decision by putting their money into commercial real estate.