TPR excerpts this piece by Hannah Miet from Urban Land magazine, from the ULI Fall Meeting last week in Las Vegas. 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 from moderator Emi Adachi, 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, Liz Ptacek, a principal of global real estate market research and analytics for StepStone; and Tom Errath, managing director for research and strategy at Harrison Street. Find the full piece online, here.
"Outside the office sector, however, panelists, now armed with a quarter’s worth of new data, said that their outlooks were rosier"
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 Theater 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 “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.
NCREIF Property Types Total Returns
NCREIF
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.”
Continue reading on Urban Land.
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