Commercial real estate sales could come roaring back this year at a level that could topple the long-term average of transactions by more than $100 billion, according to a new report from the Urban Land Institute, a Washington, D.C.-based urban planning and research group.
The Real Estate Economic Forecast report, produced by the ULI Center for Capital Markets and Real Estate, predicts that total U.S. commercial real estate deal volume will reach $500 billion by the end of 2021, surpassing the national long-term annual average of $347 billion and the roughly $427 billion in deals that closed last year. The group predicts deal volume could increase further, reaching $550 billion next year and $590 billion in 2023.
The figures in the report, based on a May survey of 42 economists and analysts at 39 real estate organizations, represent a marked improvement from predictions made only six months ago, amid significant economic uncertainty during the pandemic. In October last year, ULI forecast roughly $400 million in commercial property sales in 2021 and $500 billion in 2022.
ULI said the increased optimism on real estate sales this year largely reflects the widespread rollout of COVID-19 vaccines, reopenings of the economy, growth in economic metrics including gross domestic product and jobs, as well as trillions of dollars of stimulus and relief spending.
CoStar analysts have noted sales volume already picking up across property sectors. Demand for the industrial market, for instance, has been so high among investors that “large industrial portfolio deals, recapitalizations, and individual sales are expected to generate record levels of transaction activity in the near term,” according to the latest CoStar Market Analytics report. Even retail property sales, which suffered significantly at the onset of the health crisis, bounced back to levels close to pre-pandemic trends by the end of last year, CoStar data shows.
The ULI projection also comes as some of the largest brokerages are projecting a gush of commercial real estate deals to close in 2021, as nearly a third of the U.S. population is currently inoculated. CBRE, JLL, Colliers, Newmark, Cushman & Wakefield and Marcus & Millichap are all betting on the increase in transactions as the growing vaccination rate creates more opportunities for more social interaction, leading many of the sectors that suffered during lockdowns or stretches of limited capacity to open again.
The return to offices is expected to bring workers back to downtowns, where they may shop, dine and live in bigger numbers than in the past year.
“We’re increasingly seeing evidence of a broad-based recovery in the commercial real estate sector as mass vaccination develops herd immunity in the public and the end of the pandemic appears to be in sight,” Kevin Brown, an analyst with Morningstar, told CoStar News in an earlier interview.
To that end, the U.S. gross domestic product is projected to grow by 6.5% this year, according to the ULI report. That’s a sizable increase from the 3.6% growth rate projected in the firm’s fall forecast. If the GDP were to post that growth, it would represent the fastest growth rate since 1984, according to ULI.
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