In February, the U.S. experienced a sharp decline in transaction volumes which was the first sign the Commercial Real Estate market was slowing down. Now a new report released by the Urban Land Institute predicts that the CRE market will slow down over the course of the next few years. The good news is the leading economists who contributed to the report are expecting declines to happen gradually and orderly, unlike boom-and-bust cycles of the past.
“2015 was a record year and continuing at that pace is difficult for the market to maintain” says Keith Darby, President of Rise Realty. Researchers are now estimating slower economic growth and lower returns from public and private markets.
The survey noted that this cycle’s transaction volumes peaked in 2015, and volumes should ease downward 11% through 2018. Prices and rents are projected to grow over the next three years, but at slower rate. Vacancy rates are expected to improve as well, but need to be monitored more closely given development pipelines. If demand slows, vacancy rates will increase and more pressure will be put on prices and rents.
The expected plummet, while a downturn, may still be above twenty year averages. The market is continuing to see investment, especially considering the volatile stock market, which will help maintain an overall health.