Real estate is in good shape but residential is challenged

by Steve Randall19 Apr 2018

Things are looking positive overall for the real estate industry but there are some concerns over the residential sector.

A new study says that the changes to taxation give a boost to the latest economic forecast for the industry from the Urban Land Institute, based on a survey of 48 leading economists and industry analysts.

Both the economy and the real estate industry are given a stronger outlook by the experts than when they were last polled in October 2017. Even with rising inflation and interest rates, the overall position looks more favorable.

The survey covers expectation for the next three years including 2018.

“The outlook for individual property sector fundamentals generally continues to reflect the characteristics of the current real estate cycle,” said ULI leading member and survey participant Andrew Warren, director of real estate research at PwC. “Fundamentals either are steadily improving or appear to have stabilized at sustainable levels. “Despite differences in performances between property sectors, there is no indication that we are about to see any imbalance in 2018 that will send any of the sectors into a significant downturn.”

Commercial more optimistic than residential
The report shows that those polled believe the industrial sector will continue to be the star player in real estate for the next three years. Availability is set to tighten to 7.4% in 2018, well below the 10.1% 20-year average, and only rising to 7.5% in 2019 and 7.7% in 2020.

Offices, hotels and even retail are expected to show some positive conditions during the survey period, especially as consumer spending increases amid better economic conditions, job growth, and wage rises.

For apartments, vacancy rates are expected to be 5% in 2018, 5.2% in 2019 and 2020. However, rent growth is downgraded to 1.5% in 2018 (from 2% 6 months ago), with a 2% rise in 2019 and 2020.

For single-family homes, supply will remain constrained despite the experts expecting a slight rise in starts (to 923,000) in 2018. This is below their previous forecast and is expected to decrease in 2019 and 2020.

Home prices for single-family units are forecast to rise 5.3% on average in 2018 and 4.3% in 2019.

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