And The Crystal Ball Says…

Editor’s Note: Dennis Fassett is a former corporate finance executive turned real estate investing “Cash Flow Mercenary.” Dennis specializes in single-family and multi-family cash flow properties and thoroughly enjoys assisting his fellow investors with their own strategies, including how to buy your first apartment building.

As an ongoing contributor to Mogul’s “Market News Updates,” Mr. Fassett provides us with his own unique, lively, and thought-provoking commentary on the timely industry news and events of today that are impacting our industry. And be sure to check out his other super-helpful Market News Updates. For now, enjoy...

From Dennis Fassett, Cash Flow Mercenary...

It appears that I’m not the only one who’s keeping an eye out for what the real estate market might do over the next 18 months.

I read an article in Inside Business that gave their take on where things are going. And they were largely positive on where they think it’s going.

They quoted an economic forecast from a nonprofit research and education organization, which predicts "three more years of favorable real estate conditions."

According to the ULI Real Estate Consensus Forecast, the U.S. real estate market is projected to "continue expanding at healthy and fairly steady levels for 2015 through 2017." Its forecast is based on a survey of more than 40 economists and analysts from real estate investment, advisory and research firms and organizations.

While not as optimistic as their survey results released back in the spring, this forecast reflects more recent growth concerns and stock market corrections.

They quoted the survey results as saying:

"The U.S. economy and real estate markets are in much better shape than most other countries, but global economies and capital markets are increasingly inter-related."

And that means that although we’re doing well, if other countries perform poorly, it could have an impact on us here.

The survey also stated:

“…the vast majority of indicators in the forecast indicate favorable economic and capital markets in the U.S., as well as moderately strong real estate fundamentals and investment returns."

More Interesting Results

The article also summarized the survey results across the different sectors of the real estate market:

Commercial real estate transaction volumes will average $503 billion over the next three years, just below the all-time peak of 2007.

Commercial real estate prices are projected to rise by 6.8 percent per year, compared with a long-term average increase of 5.4 percent. This is a marked drop from the prior forecast. The increase forecast for 2017 is only 4.5 percent.

Among the five major property types, the hotel sector is poised for the greatest growth. Office and warehouse rent growth also will be strong at 4 percent per year. All three property types are up slightly from the prior forecast.

Vacancy rates are expected to continue to decrease modestly for office and retail. Industrial availability rates and hotel occupancy rates are forecasted to improve modestly in 2015 and essentially plateau in 2016 and 2017. Apartment vacancy rates also are expected to decline slightly in 2015 but reverse direction and rise slightly in 2016 and 2017.

Commercial property rents are expected to increase for the four major property types in 2015. Rent increases in 2017 in these four types will range from 2.8 percent for retail to 4 percent for office.

Single-family housing starts will increase to 745,000 in 2015, 842,000 in 2016 and 900,000 in 2017 but still remain below the 20-year average. Home price increases are expected to moderate to 5 percent in 2015, 4.3 percent in 2016 and 3.9 percent in 2017.

So the ULI Real Estate Forecast findings show that most segments of the market are doing better than the long-term average.

And that, friends, is good news for us!