There is no end in sight for the long-lived U.S. economic and real estate market expansion, according to leading real estate economists. The U.S. economy will continue to expand through 2022, job growth will slow but stay above the long-term average, and core real estate returns will decelerate but stay comfortably above fixed-income alternatives. Rent growth will be modest but positive for all property types, led by industrial and apartments. Even the much-maligned retail sector will have positive rental rate growth over the next three years.

These projections are based on a special year-end version of the “ULI Real Estate Economic Forecast,” prepared by the ULI Center for Capital Markets and Real Estate. The forecast is based on a survey completed in December by 27 economists/analysts at 24 leading real estate organizations.

In 2019, the U.S. economy continued to advance despite numerous headwinds, including an inverted yield curve, ongoing trade disputes that included a steep rise in tariffs on imported goods, slowing global growth, and deep discord in Washington, including the rare impeachment of a president. Despite these circumstances, the S&P 500 Index generated a total return of 31.5 percent for the year, the second-highest return of the past 23 years.

Though they trailed the S&P Index, equity real estate investments trusts (REITs) also did well in 2019, with a total return of 25.8 percent. Within the REIT universe, industrial REITs were the star performers, with a total return of 48.7 percent, while malls were the only property type to post a negative return, down 9.1 percent.

Register for a ULI member-only webinar on the 2020 economic outlook, scheduled for January 24.

With ebullient equity markets and very low interest rates as a backdrop, it is no surprise that real estate economists were generally upbeat about the next three years. This is the first survey that included forecasts for 2022, and predictions for that year are generally in line with or more optimistic than forecasts for 2020 and 2021. A few forecast highlights:

  • Growth in the gross domestic product (GDP) of 2.0 percent in 2022, slightly ahead of the 2021 forecast.
  • Average employment growth of 1.56 million per year from 2020 to 2022, despite record-low unemployment and reported worker shortages in some sectors.
  • Continued strong real estate transaction volume averaging $476 billion through 2022, well above the long-term average of $328 billion.
  • Unleveraged core private real estate returns of 5.0 to 5.3 percent over the next three years, as measured by the NCREIF Property Index (NPI). This is below the 20-year average of 9.3 percent, but potentially attractive relative to borrowing costs and fixed-income alternatives.
  • Solid average annual rental growth through 2022 of 3.1 percent for industrial, 2.7 percent for apartments, 2.4 percent for office, and 1.1 percent for retail. These growth rates compare favorably with long-term increases for these sectors of 1.3 percent, 2.3 percent, 1.6 percent, and 1.3 percent, respectively.

Survey respondents were asked when the next U.S. recession would occur. The median response was 2021, with answers ranging from late 2020 to 2024. This was a new question and only two-thirds of the group responded, so there may be less conviction on this subject.

Similar to previous surveys, the main takeaway from this most recent one is a continuation of the record-long U.S. economic and real estate expansion. The future will consist of slow to moderate growth in GDP, employment, and rental rates, and below-trend returns from private core real estate. Although unforeseen global or domestic events could trigger a near-term recession, economists are guardedly positive about the market over the next three years.

Register for a ULI member-only webinar on the 2020 economic outlook, scheduled for January 24.