ULI Economic Forecast Calls for Continued Growth

The Urban Land Institute (ULI) recently released its semi-annual economic forecast for Spring 2022. It generally has a more positive outlook for the economy and for the multifamily housing industry than their last forecast from 6 months ago. .

The report combined individual forecasts from 47 economists and analysts into a consensus forecast for the US economy and housing markets over the next three years. This summary focuses on the parts of the report relating to multifamily housing.

Look at the economy

The ULI report highlights that the real GDP of the US economy grew by 5.7% in 2021, with employment increasing by 6.7 million jobs. For 2022, the report projects real GDP growth of 3.2% and employment growth of 4.1 million jobs. Job growth should finally lift employment above its pre-pandemic level in 2022.

The report projects real GDP growth of 2.3% in 2023 and 2.1% in 2024. These rates are slightly above the average of the past 20 years. Unlike Fannie Mae’s most recent forecast, ULI’s economic forecast does not predict a recession in 2023.

Employment is expected to increase by 1.9 million in 2023 and 1.2 million in 2024. These levels are lower than in recent years, but still above the 20-year average of 1.0 million new jobs per year. .

The report notes that inflation measured by the consumer price index (CPI) in 2021 was 7.0%. ULI’s economic forecast predicts inflation of 6.0% in 2022, 3.0% in 2023 and 2.5% in 2024. For comparison, the 20-year average inflation as measured by the CPI is 2.3%.

The ten-year Treasury bill rate is now expected to end 2022 at 2.7%. It is expected to reach 3.0% in 2023 and remain at this level in 2024.

Focus on apartments

Apartment vacancy rates, which were around 4.1% before the pandemic, reached 4.5% in 2020. In 2021, vacancy rates have dropped to 2.5% and forecasts from ULI predict that they will increase only slowly over the next few years. . Vacancy rates are now expected to be 2.5% in 2022, 2.7% in 2023 and 2.9% in 2024. Note that these vacancy rates are significantly lower than those reported by other sources such as Apartment List and the Census Bureau.

ULI reported that apartment rents increased by 13.4% in 2021. Their forecast calls for rents to increase by 7.5% in 2022, 5.0% in 2023 and 3.4% in 2024.

While ULI’s economic forecast predicted 1.20 million single-family housing starts in 2022, 1.25 million in 2023, and 1.1 million in 2024, ULI did not provide a forecast for the construction of multi-family housing.

The apartment business

The report included a projection of total annual apartment returns as defined by the National Council of Real Estate Investment Trustees (NCREIF). These returns average 8.9% over 20 years, but fell to just 1.8% in 2020 before rebounding to 19.9% ​​in 2021. ULI projects total annual returns to fall to 14.0% in 2022, 9.0% in 2023 and 7.8% in 2024. .

The ULI Economic Forecast also contains projections for commercial real estate cap rates, transaction volumes and real estate price changes. However, these projections relate to commercial real estate as a whole; apartments are not broken down as a separate asset class. According to forecasts, cap rates in 2022 will remain at the level of 4.0% in 2021. Cap rates are expected to increase to 4.3% in 2023 and remain at the same level in 2024.

In 2021, commercial real estate transaction volumes rebounded strongly from the low of $431 billion reached in 2020. Transaction volumes ended 2021 at $846 billion, well above the 17-year average of 427 billions of dollars. Transaction volumes are expected to reach $800 billion in 2022, $725 billion in 2023 and $750 billion in 2024.

The full report also covers other commercial property types and the single-family housing market. It is available for ULI members at uli.org. The ULI’s next consensus economic forecast is due out in October.