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Renewed Optimism for Capital Markets
Tucker, Michael
A panel of real estate economists sees renewed optimism for growth in both real estate capital markets and commercial real estate fundamentals.

“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, executive director of the ULI Center for Capital Markets and Real Estate, Washington, D.C. “After a prolonged period of uncertainty, we’re seeing a revival of investor confidence as the economy continues to recover.”

Economists surveyed expect a generally favorable outlook for the economy, including steady improvement in both economic growth and employment. 

“If we’re even close to right on our forecast, it looks like the economy is going to be in very good shape,” said Kevin Thorpe, chief economist with Cassidy Turley, Washington, D.C.

Schwanke said predictions for commercial real estate activity have “improved significantly” from the last survey, conducted six months ago. He said transaction volume in 2013 is expected to rise to $310 billion from $290 billion in 2012, then rise to $340 billion in 2014 and $360 billion in 2015.

"Institutional global capital is searching for a home that provides the best risk-adjusted return, without regard for borders,” said Howard Roth, Ernst & Young’s global real estate leader. “As the consensus of the economists participating in our survey confirms, the U.S. capital markets, the housing sector, and commercial real estate fundamentals are clearly improving, trends which we believe place the U.S. real estate sector squarely in the sights of global investors for the foreseeable future.”

The panel forecast total annual returns from institutional-quality direct real estate investments for the apartment, retail, industrial and office sectors of 9.5 percent this year, 9 percent next year and 8 percent in 2015, continuing a downward trend that started last year, but remaining in the range of long-term historical averages.

Total returns for equity real estate investment trusts could reach 12 percent in 2013, the survey reported, then they will likely moderate to 10 percent for 2014 and 8 percent for 2015. “While these reflect a sharp decline from the surging REIT returns of 28 percent in both 2009 and 2010, the forecast suggests that REIT returns are settling at a more sustainable level,” Schwanke said.