The persistent theme over the current economic cycle of “lower for longer” growth has contributed to a record expansion cycle that has surpassed 10 years. Results from ULI’s latest “Real Estate Economic Forecast” show that trend is likely to continue into 2021, said panelists speaking on a webinar discussing the survey results.
Although real estate economists have tempered their view on economic growth over the past six months, according to the latest ULI survey data, they continue to forecast positive GDP growth, slower but solid job growth, and steady real estate markets and returns through 2021. This is despite the U.S. yield curve inverting (often a harbinger of a recession), an escalation of the U.S.-China trade dispute, and slowing economic growth in Europe, particularly in the United Kingdom and Germany.
Despite record amounts of capital seeking deals, market nuances must be navigated.
Interest rates have been on a roller-coaster ride over the last year, but cap rates are largely unchanged. The result of these moves is that cap rate spreads relative to the safe investments in the 10-year U.S. Treasury bonds have moved back to the levels seen in 2017. Given everything that has changed over the last year—as well as everything that has not—there may be room for cap rate spreads to move lower.
At the 2019 ULI U.K. National Conference, a panel on the practicalities of real estate investment reflected on the opportunities and challenges, not least in terms of the impact that Brexit is having on investor sentiment, as well as where we are in the market cycle. Multifamily continues to do well, while retail is struggling as in overbuilt markets.
Pragmatism and caution have defined China’s 40 years of economic reform, and this steady progress is set to continue, said Shui On Group chairman Vincent Lo speaking at the 2019 ULI Asia Pacific Summit. Lo—who has been investing in China real estate for more than 30 years—said that the nation’s approach can be summed up by the aphorism “cross the river by feeling the stones.”
Asset prices in Japan have risen strongly in recent years, fueled by influences including cheap and abundant capital, positive yield spreads, slow but steady economic growth, and a resurgent tourism sector that has proved to be a boon for local retailers. And, not least, positive sentiment around the 2020 Summer Olympics has been a factor, with many investors believing the market will remain buoyant until after the Games are finished. Recently, however, perceptions have shifted, with a growing body of opinion gravitating towards the view that a correction may occur well before summer 2020.
ULI research highlights continued demand for property as investors try to balance their appetite for yield amid potential market risks.
The U.S. economy is weeks away from celebrating the start of its record-breaking 11th year of economic expansion, and the latest ULI Real Estate Economic Forecast is pointing to an even longer run that could extend through 2021, as discussed on a webinar hosted by ULI.
ULI Advisory Services convened a panel of land-use experts in early April to brainstorm ideas on how to improve funding for long-term maintenance and sustainability of Detroit’s parks.