Moderator Emi Adachi (far right), managing director and co-head of global research at Heitman, William Pattison, head of research and strategy at MetLife Investment Management’s real estate group, moderated the panel that featured Liz Ptacek, a principal of global real estate market research and analytics for StepStone; William Pattison, head of research and strategy at MetLife Investment Management; and Tom Errath, managing director for research and strategy at Harrison Street.
Hannah Miet
On Wednesday, during the ULI Fall Meeting’s final day at Resorts World Las Vegas, a panel of commercial real estate experts gathered onstage in the Resorts World Theatre to forecast the industry’s trajectory through 2026.
The session—titled Learning in Real Time: Experts Share Their Forecasts for Real Estate in ’24, ’25, and ’26—featured discussions around risks to commercial real estate recovery, property values, and strategic investment opportunities.
Panelists, moderated by Emi Adachi—managing director and cohead of global research at Heitman, a Chicago-based investment adviser—shed light on trends that have evolved, in many cases, since the data in the ULI Real Estate Economic Forecast was calculated and analyzed.
Panelist William Pattison, head of research and strategy at MetLife Investment Management’s real estate group, said that the U.S. economy, from a macroperspective, has entered what he calls “the first soft landing the U.S. economy has ever had, post-World War II.” He noted, though, that the rest of the economy did not enter a significant downturn. Commercial real estate was one of only a few industries that did.
Therefore, unlike during the Global Financial Crisis, the industry benefits from “somewhat stabilized capital market conditions,” he said.
The bottom
Prices have probably bottomed out in many sectors but not in office, which still faces uncertainties, Pattison said.
“I think it could be reasonable to expect [office] vacancy to start declining next year,” he said. “We may be at the peak for vacancy, but . . . the pace at which it recovers is more important than when the actual peak [occurs].”
Transaction pricing is improving and will continue to do so as more capital is deployed, according to Liz Ptacek, principal of real estate market research and analytics globally at StepStone Real Estate, who adds that she doesn’t “actually welcome it entirely.”
“I think it reinforces bad behavior,” Ptacek said.
Real estate funds haven’t reduced the valuation of their assets quickly enough, Ptacek said, thus contributing to sluggish transaction volumes and limiting market liquidity. “[If] values don’t adjust more . . . to get the discounts that we need to produce the returns we are all expecting . . . [I’m worried], not so much [about] outsized losses but [about] undersized returns,” she said. Ptacek predicted that “fund managers will wait for market pricing to close the gap, and that will, I believe, result in disappointing fund returns for quite some time.”
Furthermore, Ptacek said, “I also worry that pricing is increasingly disconnected from property market fundamentals.”
The office equation
Panelists agreed that the outlook for the office sector was more negative than the National Council of Real Estate Investment Fiduciaries (NCREIF) property survey—included in the ULI forecast—indicated.
Tom Errath, managing director of research and strategy at Harrison Street, an alternative asset manager, said that there is likely to be more distress ahead in the office market “because those leases haven’t rolled yet.”
“If you’ve seen anybody try [to] sell an office building lately, other than a trophy building . . . they’re going for, you know, 50 cents on the dollaror less,” Errath said.
Outside the office sector, however, panelists, now armed with a quarter’s worth of new data, said that their outlooks were rosier than the NCREIF survey suggested. “Outside of office, I think anyone who is still waiting for values to [hit] bottom missed it, probably 6 or 12 months ago,” Pattison said.
Alternatives
Panelists were especially bullish on alternative property sectors.
Errath said Harris Street’s “original investment thesis” revolves around the concept that alternatives match or outperform “broader economic conditions.” “Our property performance in student [housing], senior [housing], self-storage, medical offices, and data centers has never been stronger . . . regardless of everything else that’s happening.”
“The definition of core and alternatives has been blending for many years,” Pattison said. “I don’t know if [any distinction between them] really exists anymore.”
Panelists said that they anticipate a slow and steady increase in transaction volumes, starting with a focus on individual assets rather than on portfolios.
According to Errath, “The logjam is breaking a little bit, and people are starting to test the market and . . . get [deals] done, in some respects—because they have to . . . because you’ve got fund lives or . . . capital structures.”
The assets trading now are individual, “right-down-the-middle assets,” Errath said, in asset classes “that maybe have some existing debt that’s good [and] can be rolled over, [and] that have strong rent growth . . . because people don’t, to a large extent, want to take chances right now.”
He said some portfolio sales are starting, in earnest, to “inch their way back into the market.”
Bid-ask spreads
Adachi asked panelists about the bid-ask spread narrowing.
“Who is capitulating, the sellers or the buyers?” she said. “I would have thought the sellers. [But] there are some interesting data points I’ve heard, in the market recently, suggesting that it’s the buyers who are capitulating.”
According to Ptacek, buyers are capitulating more in favored property sectors, leading to low cap rates and high bids.
Errath agreed. “Sellers don’t have to transact,” he said. “We’ve put some things out there as kind of a test, and if we didn’t get to our number, we just pulled it back . . . and . . . we were okay to continue to collect rent . . . until things got better.”
Election risks
When Adachi asked panelists about risks to commercial real estate’s recovery, the impending U.S. election came up in discussion almost immediately. “The outcome of the election will have pretty significant implications for the economy and the investment market,” Ptacek said.
If former president Donald Trump is elected, the risks include tariffs and restrictions on immigration, panelists agreed. The former president, Ptacek said, would probably bring inflationary pressures. “Economists certainly agree in their endorsements [of Vice President Kamala Harris], and the market is in agreement,” she said.
If Trump enacted the types of immigration policies he frequently speaks about, they could chill the labor force growth that drives commercial real estate, Pattison said. “Under a Trump presidency, immigration is probably the biggest risk, [as] a slowdown or reversal in net migration trends would be a headwind to almost all the commercial real estate sectors in coming years,” he said. “We in commercial real estate are different from other sectors, in that we are not driven by corporate profits, [in contrast with] the stock market or the bond market. We are driven by people and employment.”
Immigration upheld the oversupplied Sun Belt apartment market in recent years, Pattison explained, which led those assets to perform “better than expected,” much to the relief of investors. “The story was fairly scary a few years ago, when the number of starts started spiking,” he said.
Thanks to high immigration rates in recent years, though, markets such as Austin have undergone only slight drops in effective rents, according to Pattison. “If [immigration] reverses, that would leave the real estate sector . . . uniquely poorly positioned, compared to other institutional investment classes,” he said. A Harris presidency, Pattison predicted, could introduce “quite a few small tax changes . . . that are risks to our sector.”
Geopolitical risks
Errath said that the industry as a whole may be underestimating geopolitical risks that could “have second-order effects” on commercial real estate by affecting capital markets, the supply chain, and aspects of the overall economy.
“With Israel and Gaza, [with] China, and [with] North Korean troops helping the Russians [invade] Ukraine, there’s just so many hair-trigger potential events that can happen,” he said. “I was just in Europe, talking to some of our investors over there, and they are really worried about [the war in] Ukraine. And it seems like that’s just kind of falling off our radar screen here [in the United States], in the wake of everything else.”
