Real estate economists’ outlook on the U.S. economy and real estate markets improved throughout the year as economic data remain strong and real estate values and performance seem to be nearing bottom. Survey responses indicate that a soft landing has become the consensus view. The Fall 2024 ULI Real Estate Economic Forecast, a semiannual survey of economists and analysts, marks a shift toward greater optimism for real estate performance in the near term, with recovery taking shape in 2025.
After several years of heightened recession fears, the Fall 2024 survey results no longer predict economic performance to slow in the near term. Forecasts are generally in line with long-term historical averages, consistent with a soft-landing economic scenario. Annual GDP growth and employment growth forecasts both increased relative to Spring 2024 predictions. Survey respondents also projected slightly lower 10-Year U.S. Treasury rates, as the Federal Reserve has begun to cut interest rates.
Lower interest rates should help kickstart recovery in real estate performance and begin to thaw capital markets. Economists predict that real estate values will end 2024 at trough levels and begin to recover in 2025 and 2026. Recovering values will boost real estate returns, but performance will continue to vary by property type. Capital markets are also projected to pick up, particularly in commercial mortgage-backed securities (CMBS) issuance.
The Real Estate Economic Forecast, produced by the ULI Center for Real Estate Economics and Capital Markets, is based on a survey conducted September 18 to October 4, 2024, that encompassed 36 economists and analysts at 28 leading real estate organizations. The forecast results are based on the median responses gathered in the survey, which reflect a wide range of views—some better, some worse.
Key findings
Economists’ outlook for real estate markets generally improved relative to Spring 2024. Against a backdrop of somewhat lower interest rate expectations, respondents indicated that real estate valuations are at bottom or near it. The NCREIF capitalization rate forecast for 2024 held steady at 4.8 percent, but 2025 and 2026 forecasts were revised down to 4.8 percent and 4.6 percent, respectively, from 5.0 percent and 4.9 percent in the Spring survey. The MSCI CPPI is projected to remain flat in 2024, a notable improvement from Spring’s forecast of a 5.0 percent decline. Appreciation forecasts increased to 2.8 percent in 2025 and 4.8 percent in 2026, up from 2 percent and 4 percent, respectively, six months ago.
With valuations expected to begin recovering within the next year, return expectations improved for both private and public real estate indices. Economists forecast the NAREIT All Equity REITs index to return to 15 percent in 2024, up from the previous forecast of 9.3 percent. Returns are predicted to moderate to 9 percent in 2025, similar to the previous forecast of 10.0 percent, and return expectations for 2026 held steady at 8 percent. Return forecasts for the NCREIF Property Index (NPI) of unleveraged core real estate also improved in the Fall survey. Return forecasts are still negative for 2024 at -1.7 percent, but they improved from the Spring’s forecast of -3.8 percent. Return forecasts for 2025 and 2026 rose to 4.4 percent and 6.9 percent, respectively, still somewhat below the index’s long-term average return of 8.2 percent.
Return forecasts rose for three of the four main property types—office forecasts declined—compared to six months ago. Retail return forecasts are highest, at an annual average of 4.8 percent. Industrial and apartment returns follow at 4.0 percent and 3.4 percent, respectively. Economists continue to expect the office sector to suffer, with an average annual return of -2.7% through 2026. The Fall 2024 survey added forecasts for senior housing and single-family rental returns, which average 3.3 percent and 4.4 percent over the next three years, respectively.
Lower interest rates are also expected to thaw real estate capital markets. Commercial mortgage-backed securities issuance forecasts rose notably from six months ago. Respondents expect annual issuance to rise from $85 billion in 2024 to $110 billion in 2025 and $120 billion in 2026, well above the long-term average of $83 billion. The Fall forecasts represent significant increases from the Spring’s forecasts of $45 billion, $68 billion, and $88 billion, respectively. In contrast, commercial real estate transaction volume forecasts moderated slightly to $400 billion in 2024, $500 billion in 2025, and $600 billion in 2026, resulting in a cumulative decline of $70 billion versus six months ago.
Rent growth forecasts continue to vary by property type. Among the four main property types, economists’ forecasts rose for apartments and office, held steady for retail, and edged down modestly for industrial, relative to six months ago. Except for office, average rent growth forecasts for the three other main property types’ were at their long-term historical averages or above them. Industrial continues to enjoy the highest rent growth projections, averaging 3.6 percent annually. Apartments and retail follow at 2.7 percent and 2.6 percent, respectively, and office lags with a modest but positive annual rent growth forecast of 0.2 percent.
Projections for hotel revenue per available room (RevPAR), which combines rental rates and occupancy, fell to an annual average of 2.5 percent in the Fall survey, down notably from the spring’s forecast of 3.8 percent. Single-family rental and senior housing average annual rent growth projections were both favorable relative to the main property types at 3.0 percent and 5.1 percent, respectively.
Vacancy forecasts rose for industrial and retail relative to Spring 2024 predictions, but both are expected to remain below long-term averages. In contrast, vacancy forecasts fell for apartment and office but remain above historical average rates. Respondents expect industrial availability rates to peak at 8.5 percent in 2024 and 2025 before falling to 8.1 percent in 2026. Retail availability rates are projected to steadily moderate, falling from 6.5 percent in 2024 to 6.3 percent in 2026. Apartment vacancies are forecast to reach a high of 5.6 percent in 2024, then Fall to 5.5 percent in 2025 and 5.3 percent in 2026.
Office vacancies are predicted to remain high, rising to 19.8 percent in 2025 and remaining there through 2026, marginally lower than the 20.1 percent peak predicted six months ago.
Hotel occupancy rate forecasts declined slightly from six months ago but remained above the long-term average. Occupancy is projected to rise steadily from 63.0 percent in 2024 to 63.9 percent in 2026. Senior housing occupancy is similarly predicted to increase through 2026, rising from 87.0 percent in 2024 to 88.5 percent in 2026, moderately above its long-term average of 87.1 percent. Respondents predict single-family rental occupancy to remain at 95.4 percent through 2026, slightly below its historical occupancy average of 96.2 percent.
Single-family construction has been strong recently, and economists expect this trend to continue. Forecasts for single-family housing starts ticked up modestly in the fall survey for all three forecast years. Starts are predicted to remain above their historical average of 890,000 and rise to 975,000 in 2024, 1.0 million in 2025, and 1.1 million in 2026. Home price change is also predicted to remain elevated in 2024 at 4.8 percent, an increase from the Spring’s 4.0 percent forecast. Economists expect price increases to taper to 4.0 percent in 2025 and 3.7 percent in 2026, slightly below their long-term average of 4.5 percent.
Key findings for major economic indicators
The ULI Real Estate Economic Forecast’s Fall 2024 macroeconomic projections generally improved relative to Spring 2024 forecasts as the U.S. economy has remained resilient. Economists project the economy to perform in line with historical averages in the near term, a positive change after long-held expectations of a slowdown. Annual GDP growth is expected to total 2.5 percent in 2024 and 2.0 percent in 2025, both 30 basis points higher than Spring forecasts. Growth is forecast to hold steady at 2.0 percent in 2026, equal to the previous forecast.
Respondents’ forecasts for employment growth similarly increased. Annual growth forecasts for 2024 rose from 1.8 million in the Spring to 2.3 million, and 2025 growth increased from 1.5 million to 1.6 million. Job growth is forecast to moderate slightly in 2026 to 1.5 million, a slight decrease from the previous forecast of 1.75 million but still above the long-term average of 1.3 million. Cumulative employment growth forecasts for 2024-2026 were higher by 350,000. Unemployment rate projections rose somewhat in the Fall survey, indicating that much of the expected job growth is due to increasing labor force growth and participation. The unemployment rate is projected to end the year at 4.3 percent and hold steady at that rate through 2026. Although this number represents a modest increase from September’s 4.1 percent unemployment rate, it remains well below the long-term average of 5.7 percent.
Economists’ outlook for the Consumer Price Index (CPI) also improved in the Fall survey. They now expect inflation to end 2024 at 2.6 percent before moderating further to 2.5 percent in 2025 and 2.3 percent in 2026. Respondents expect year-end 10-year U.S. Treasury rates of 3.8 percent in 2024, 3.7 percent in 2025, and 3.8 percent in 2026. The near-term predictions are down slightly from the Spring forecasts of 4.0 percent in 2024 and 3.75 percent in 2025. One possible disconnect in the forecast is that the 2026 spread between the net property income yield and the 10-Year Treasury is forecast at 80 basis points, compared to a long-term average of 140 basis points. Possible explanations include lower return requirements for real estate or greater income growth compared to past cycles.
Respondents to the Fall 2024 ULI Real Estate Economic Forecast upgraded their projections relative to Spring 2024 to reflect a stronger near-term economic outlook, with the U.S. economy performing at or above historical averages. Real estate market projections were also more optimistic, reflecting the view that values and performance are at bottom or near it, at least for most property types. Recovery is expected to take shape in 2025 and 2026.
Related reading:
Urban Land Institute Unveils Real Estate Economic Forecast, Spring 2024
