Ken Rosen, moderator and managing director with Andersen; Emi Adachi, managing director and co-head of global research at Heitman; Tom Errath, managing director of research and strategy at Harrison Street; and Sabrina Unger, managing director and head of research & Strategy at American Realty Advisors.
ULI/Sibley Fleming
Economic forecasters gathered on the final day of the ULI Fall Meeting at the Moscone Convention Center in San Francisco to analyze the current landscape and future expectations for the economy. The ULI Real Estate Economic Forecast, a semiannual survey of leading industry experts, served as the backdrop for discussions about how 33 key economic and real estate indicators are projected to move by the end of 2025, 2026, and 2027.
Ken Rosen, managing director with Andersen, moderated the panel and opened it by sharing a crucial consensus forecast that projects economic growth around 2 percent for the next three years—a significant decline from post-Covid boom levels. The event featured a lively debate among prominent economists and analysts who participated in the Real Estate Economic Forecast survey. They discussed how forecasts have shifted over the past six months, the impact of tariff realities and uncertainties on commercial real estate, and the signals the panelists are watching for as they think about the future.
“We predict about 3.8 percent growth this quarter,” Rosen noted, emphasizing the need for careful monitoring of emerging trends. Looking ahead, he expressed concerns that external factors could significantly affect growth potential as we move toward 2026. “While we have a solid base case, we must stay alert to downside risks as the year progresses,” he added.
Optimism amid caution
Emi Adachi, managing director and co-head of global research at Heitman, echoed a cautious yet optimistic perspective. “While we align with the consensus, we anticipate a slightly better growth trajectory due to forthcoming policy changes and the benefits of deregulation,” she said. “If key regulations are relaxed under the new administration and we continue to see advancements in artificial intelligence, I believe we might see growth rise modestly in 2026 and beyond.”
Adachi’s bullish outlook on AI and regulatory changes was met with interest by fellow panelists, as they weighed these factors against current economic trends. She highlighted the critical role of high-income consumers in maintaining economic momentum. “If the wealth effect continues to support consumer spending, we may avoid a deeper downturn,” she said. She warned that a sell-off in high-income assets could have detrimental effects on broader economic health, however, particular for lower- and middle-income consumers who are already exhibiting signs of restraint in spending.
Tom Errath, managing director at Harrison Street, commented on the opaque nature of today’s economic data. “As I was out running in San Francisco this morning, the bay was completely fogged in,” he said. “I see this as representative of the economic data we’re analyzing—while we know there’s clarity on the other side, we’re still trying to navigate through the haze.” Errath focused on the resilience of the data center sector, which continues to see substantial investment, particularly from hyper-scalers. “The reaffirmation of capital expenditure nearing $400 billion this quarter will have a significant impact on GDP,” he said.
Sabrina Unger, the head of research and strategy, stated that the latest projections from the Atlanta Fed indicate a GDP growth of 4 percent for this quarter. Nevertheless, she emphasized the need for caution, noting that a significant portion of this growth seems to be driven by investments in AI and technology.
Unger expressed concern over the dependency on the tech sector for economic health and highlighted the potential long-term impacts of a “jobless expansion.” “We need to recognize that, while technology has bolstered growth, it may not translate into sustainable job creation, which is vital for ongoing economic recovery,” she warned.
Need for clarity on inflation forecasts
Panelists highlighted the challenges posed by ongoing data collection issues amid the government shutdown. “If the government shutdown persists and we miss essential inflation rate reports, it would be the first time in seven decades that we haven’t had this data,” Unger said, emphasizing the potential risks of operating without critical economic indicators.
Errath agreed, stating that existing measurement methodologies might currently underestimate inflation. “If trends continue unchecked, we may witness inflation surpass the Fed’s 2 percent target, leading to added pressures on consumer purchasing power,” he said. Adachi echoed these sentiments, referencing studies that suggest tariffs could contribute to increased business costs, with a significant portion of those costs yet to be passed on to consumers.
Unger elaborated on the specific impact of tariffs, noting that a recent study suggested tariffs imposed this year were expected to raise business costs by approximately $1.2 trillion, with only around 55 percent of that cost being transferred to consumers so far. The question of how long businesses can keep managing these rising costs creates a significant challenge for future inflation predictions.
Economic repercussions of job growth
Adachi advocated for recalibrating expectations around job creation in the current climate, suggesting that “we might need to readjust what constitutes success in job growth moving forward.”
She noted, “We have diminished population and labor force growth due to reduced immigration, which means we do not need to create as many new jobs to keep unemployment rates stable.” This view highlights the complexity of evaluating job growth in a changing demographic landscape, where traditional expectations may no longer align with reality.
Errath highlighted the troubling revisions to prior job growth statistics, illustrating how previous overestimations could lead to skewed forecasts. “Recent revisions indicate there were 900,000 fewer jobs created than previously thought, necessitating a more cautious approach to understanding job market dynamics,” he said.
Interest rates
As the discussion turned to interest rates, and their critical role in influencing real estate valuations, Unger articulated her view on the Federal Reserve’s gradual shift toward easing policies. “The Fed seems to be moving away from a strict hold-the-line approach towards a more gradual easing policy,” she said. Given the dual mandate of the Fed to manage employment and inflation, her assessment suggested that the central bank appears to be balancing these factors thoughtfully.
“The potential for further cuts, especially if inflation remains under control, may provide necessary liquidity to stimulate growth,” Errath added. “However, we must remain cautious, as changes in the Fed’s approach could lead to unintended consequences impacting mortgage rates and capital flows in real estate markets.”
On the topic of capital flows, the resurgence in the commercial mortgage-backed securities (CMBS) market was brought to the forefront of the discussion, with panelists noting healthy capital inflows into real estate ventures. “This year has marked the best year for CMBS activity since 2007, with spreads tightening and a more favorable financing landscape for properties, especially within major markets,” Rosen said.
Yet, while capital appears to be flowing, Adachi highlighted some challenges on the equity side, noting that many investors remain cautious due to uncertainties surrounding valuation levels. “There is a lot of capital waiting to be deployed, but investors are hesitant as they grapple with market uncertainties,” she said.
Sector outlooks
Unger raised pertinent questions regarding the trajectory of the office market. “We must consider how demographic shifts and technological advancements may influence long-term office space demand,” she said. Areas such as San Francisco are experiencing stark contrasts in vacancy rates, with premium AAA-rated buildings facing near-zero vacancy while B- and C-class buildings have vacancy rates as high as 25 percent.
“There are significant opportunities for reinvention in the office sector,” she said. “However, understanding the long-term sustainability of these opportunities remains vital, especially if the changes initiated during the pandemic prove to be permanent.”
For owners of prime office properties—ones in the top 10–12 percent of the market—there’s a sense of relief, as these assets have regained value and can benefit from the overall recovery in the market, according to Unger. However, she warned that a staggering 40 percent of other office assets face serious hurdles, being labeled as “functionally obsolete” with significant challenges in repositioning without considerable capital investment.
Errath said that although urban centers such as San Francisco, Chicago, and New York have a select few desirable buildings, the broader market remains in turmoil, particularly with suburban office spaces. He noted that many suburban offices were being repurposed into self-storage facilities, suggesting a dire outlook for office real estate.
Adachi described a scenario in which an overwhelming majority of the office inventory is struggling, with only a handful of buildings maintaining desirability. She and Errath agreed that the conversion of underperforming office spaces to multifamily use is often unrealistic, raising questions about overall demand and viability in many regions.
As the conversation shifted to apartments, Rosen pointed out the residual effects of demographic trends on the housing market. Although there are vibrant pockets of opportunity in the multifamily sector, he emphasized that there are still risks inherent in the market—namely, potential overcapacity and the impact of demographic shifts. Errath noted that the apartment sector, which has historically performed well, may face challenges with market fluctuations and could be further strained if significant numbers of people begin to self-deport.
Unger acknowledged the complexities facing the multifamily market, particularly regarding traditional rentals versus build-to-rent single-family options. She described how each segment caters to different demographics, highlighting the popularity of rental communities among young families who desire spaces suitable for raising children but can’t afford to purchase homes. The speakers emphasized that understanding these market distinctions is crucial for investors looking to navigate the evolving landscape of rental housing.
A pivotal aspect of the discussion was the rising demand for niche asset classes in the current environment. Errath pointed to the retail segment, which, despite having faced considerable scrutiny, is experiencing increased interest due to a dramatic reset post-pandemic. Unger concurred, noting that grocery-anchored retail properties have also become attractive investment opportunities due to their stable income potential. However, she advised caution, indicating that the inline retail space, which encompasses smaller businesses, significantly risks being vulnerable to economic downturns.
The discussion also delved the logistics sector, as Unger shared insights into the industrial property market—specifically, smaller, last-mile logistics centers. She noted that these types of properties tend to have healthy demand, contrasting sharply with larger logistics spaces, which are currently facing overbuilding issues.
Although life sciences and health care real estate enjoyed a boom, the speakers acknowledged a shift as current vacancies sit at 25 percent. Expected cutbacks in research funding further complicate the outlook for life science facilities. Errath insisted that although the long-term potential remains strong, the industry is currently oversaturated, creating a challenging environment for operators and investors alike.
