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A survey of 38 of the nation’s leading real estate economists and analysts conducted in March by the Urban Land Institute and Ernst & Young reiterate the real estate industry is moving in the right direction.
Transaction volume in 2013 is expected to reach $310 billion, up from $290 billion in 2012, further increasing to $340 billion in 2014 and $360 billion in 2015.
These predictions for CRE activity improved significantly compared to the September 2012 survey.
The issuance of commercial mortgage-backed securities, “a key source of financing for commercial real estate,” also is expected to jump by nearly 50% in 2013 to $70 billion, up from $48 billion in 2012. The 2014 and 2015 CMBS issuance expectations also increased to $80 billion and $100 billion, respectively.
All real estate investment forecasts are more optimistic than those in the September 2012 survey mostly due to steady improvements anticipated for both economic growth and employment.
“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 Dean Schwanke, ULI senior VP and executive director of the ULI Center for Capital Markets and Real Estate, during a Web conference. “We’re seeing a revival of investor confidence as the economy continues to recover.”
Total returns for equity real estate investment trusts tracked by the National Association of Real Estate Investment Trusts are expected to be at 12% in 2013, drop to 10% for 2014, and 8% for 2015, “a sharp decline from the surging REIT returns of 28% in both 2009 and 2010,” he said. The forecast suggests “REIT returns are settling at a more sustainable level.”
Hence, annual returns from direct real estate investments for the apartment, retail, industrial and office sectors combined are forecast to be 9.5% in 2013, 9% in 2014 and 8% in 2015.
It marks the continuing of “a downward trend that started last year,” that nonetheless is in the range of long-term historical averages.
