The Urban Land Institute’s latest Real Estate Economic Forecast shows that, while the COVID-19 crisis has sent shockwaves throughout the world, U.S. real estate economists are predicting some light at the end of the tunnel, with a short-lived recession and above average GDP growth in 2021 and 2022.

The report’s conclusions are based on a May 2020 survey of 39 economists and analysts at 35 leading real estate organizations. The sentiment of the group is that the impact on the real estate market conditions and values will be much less severe than the 2008 financial crisis (with the notable exceptions of retail and hotels), but the unknowns of the global pandemic temper their expectations.

“This survey shows that leading U.S. real estate economists expect that while the top-line economic impact of COVID-19 will be much worse than the global financial crisis, U.S. real estate market fundamentals and values will fare much better compared to that era,” noted ULI leading member William Maher, retired former director of Americas strategy and research at LaSalle Investment Management. “Among real estate indicators, only retail and hotel are expected to suffer a worse outcome, while most property type returns and market fundamentals will perform much better than they did during the Great Financial Crisis.”

Maher discussed the survey results today during a ULI member-only webinar that also featured observations from Stuart Hoffman, senior vice president, and senior economic advisor, PNC Financial Services Group; Suzanne Mulvee, senior vice president, research and strategy, GID Real Estate Investments; and Tim Wang, managing director and head of investment research, Clarion Partners. Mark Wilsmann, managing director and head of equity investments, MetLife Investment Management – Real Estate, moderated the webinar panel.

Predictions from the semi-annual survey, which covers the forecast period of 2020 through 2022, include the following:

• U.S. GDP is expected to fall by 6 percent this year, which would be the largest single-year decline since 1946. GDP is expected to grow 3.9 percent in 2021 and 3.6 percent in 2022, both well above the long- term average of 2.1 percent.

• Net job growth is expected to be at negative 10 million for 2020. The estimate implies a very meaningful recovery at the latter part of 2020, and economists forecast 4 million net jobs in each of the following two years. The forecast estimates U.S. employment at 11.3 percent at the end of 2020, with a decline to 5.9 percent by the end of 2022.

• Expected yields on the 10-Year U.S. Treasury note are expected to stay very low this year and gradually increase while remaining below long-term averages. Economists estimate the 10-year yield in 2020 to be 0.8 percent and moving up to 1.7 percent in 2022.

• Real estate transaction volumes will decrease to $275 billion in 2020, but forecast transaction volumes over the next two years show a much healthier capital market than the one during the 2008 financial crisis.

• Commercial real estate price growth as measured by the Real Capital Analytics Commercial Property Price Index (CPPI) is projected to fall by seven percent in 2020, less than the 13.6 and 20.8 percent decrease during 2008 and 2009, respectively. Economists believe that one reason for this is more debt financing is expected to be more available than it was during the 2008 financial crisis.

• Rent growth expectations for the next three years is expected to be led by the industrial sector, averaging 2.2 percent from 2020-2022. Apartment growth will fall by two percent in 2020 but have an overall three-year positive average of 1 percent. All other major property types (hotel, retail and office) are expected to have negative growth over the next three year period, with hotels at -5.3 percent revenue available per room, retail at -3.1 percent and office at -1 percent.

• National vacancy or availability rates are forecast to rise for retail in 2020 to 11.6 percent, and continue rising through 2021 before plateauing in 2022. Hotel occupancy rates will plummet to 40.1 percent in 2020, while apartment and office vacancy rates will see modest deterioration in 2020 before seeing falling vacancy rates by 2022.

• Economists believe that equity real estate investment trust (REITs) returns will average -18 percent in 2020, but are predicted to rally with 10 percent returns in both 2021 and 2022.

• The single-family housing construction outlook is dampening, as starts will drop to 650,000 in 2020, a 27 percent drop from the prior year. Home price growth is forecast to average 1.1 percent in 2020 before improving to 4.6 percent in 2022.

“While U.S. real estate participants should feel some level of relief from the relatively positive view of future prospects expressed herein, the severity of the current economic downturn and the many unknowns of a global pandemic should temper our views and expectations,” Maher concluded.

ULI’s Spring 2020 Real Estate Economic Forecast is the latest in a series of forecasts based on surveys of economists and industry analysts that are conducted on a semi-annual basis by the Institute’s Center for Capital Markets and Real Estate. Results from the next survey are planned for release in October 2020.