[User] Current Conditions The home sales market in the Madison HMA is currently slightly tight, improving from slightly soft conditions in 2010. The home sales vacancy rate is currently estimated at 1.1 percent ( Vacancy rate is as of the current date, home sales and prices are for the 12 months ending June 2018, and months of inventory and mortgage delinquency data is as of June 2018. Sources: Metrostudy, A Hanley Wood Company, Wisconsin Realtors® Association, National Association of Realtors®, CoreLogic, Inc. during 2012 and 2013 and payroll expansion, existing home sales rose each year by an average of 830, or 9 percent. During the 12 months ending June homes were sold. REO sales, which peaked in 2013 at 1,450, accounting for 13 percent of all existing home sales, have fallen to 250 during the past 12 months, accounting for 2 percent of all existing home sales. Delinquent Mortgages The rate of seriously delinquent (90 or more days delinquent or in foreclosure) home loans and REO properties in the Madison HMA peaked well below—and remains below—the national rate. As of June 2018, the rate was 0.6 percent compared with 0.7 percent a year earlier and a peak of 3.6 percent in early 2010 (CoreLogic, Inc.). By comparison, the portion of seriously delinquent home loans and REO properties in the nation was 1.9 percent in June 2018 compared with 2.3 percent a year earlier and a peak of 8.6 percent in 2010. During the 12 months ending June 2018, prices averaged up 3 percent from a year earlier and or nearly 45 percent, above the previous peak of in 2008. Prices fell an average of 3 percent a year from 2008 through 2011, during the period of economic decline and early recovery. Existing Home Sales Prices Existing home sales prices, including regular resale and REO sales, have risen an average of 5 percent annually since 2012. Prices averaged during the 12 months ending June 2018, up 3 percent from the previous 12 months. The current average price is or 29 percent above the low of in 2012. The previous high of was in 2006, followed by an average decline of 5 percent annually to the most recent low in 2012. Inventory of Homes for Sale Total inventory of homes for sale, as measured by months of unsold inventory, is 3.9 months in June 2018, up from 3.5 months a year earlier (Wisconsin Realtors® Association). The inventory of homes for sale priced below increased slightly during the past year but remained below 3 months in June 2018. The inventory of homes priced between and fell compared with June 2017. Sales Permit Activity Permitting of sales housing, including single-family homes, townhomes, and condominiums, has increased or remained essentially unchanged each year since 2012. Permitting fell to an average of 880 a year from 2008 through 2012, during the housing market downturn, but has risen to an average of 1,475 a year from 2013 through 2017. Average Sales Price by Type of Sale in the Madison HMA

[Assistant] Demand for New Sales Construction Units in the Madison HMA During the Forecast Period Sales Units Demand 4,825 Units Under Construction 670 Units Source: Estimates by analyst Source: Metrostudy, A Hanley Wood Company Forecast During the next 3 years, demand is estimated for an additional 4,825 homes. (Table 6). The 670 homes currently under construction are expected to meet a portion of demand during the first year of the forecast period. New homes priced under are expected to account for most of the demand, and demand is estimated to rise each year of the forecast.


[User] Current Conditions and Recent Trends Rental market conditions in the Madison HMA have transitioned from slightly soft in 2010 to currently balanced. The rental vacancy rate in 2010 was 6.7 percent and has fallen to an estimated 4.3 percent currently (Table 7). Since 2010, renter households have increased an average of 2.0 percent annually, faster than overall household growth and contributing to the decline in the vacancy rate. Rental housing in the Madison HMA is comprised of 38 percent single-family homes, townhomes, and buildings with four or fewer units, 60 percent in larger buildings with five or more units, and the remainder are mobile homes and other housing types. Housing built for renter-occupancy, the majority of which were in apartment buildings with five or more units, has comprised approximately two-thirds of all housing units permitted since 2010 and has contributed to a change in apartment market conditions. The relatively low foreclosure rate, which, if higher, would have likely shifted more single-family homes and townhomes to renter occupancy, contributed to limited growth in the non-apartment rental housing stock. Apartment Market Conditions and Recent Trends The apartment market has transitioned from balanced conditions in 2010 to currently slightly tight conditions. The average apartment rent was $1,130, up 1 percent from a year earlier. The average rent in the Central Madison market area, which includes downtown Madison and the west side of the city of Madison is 3 percent above the average for the HMA, whereas other market areas range from 2 to 4 percent below average. Rent growth during the past year has slowed compared with an average increase of 5 percent a year from 2012 to 2017. Rental unit construction has been elevated since 2012 and has contributed to the higher vacancy rate and slower rent growth during the past year. Student Apartments Student apartments; units marketed to, but not limited to, student-renters, typically near campus and designed to support the student lifestyle, are a growing part of the rental housing stock in the HMA. From 2012 through 2017, enough student- targeted apartments were built to house 5,800 people (Triad Real Estate Partners), Rental Market Quick Facts 2010 Current Rental Vacancy Rate 6.7% 4.3% Occupied Rental Units by Structure Single-Family Attached & Detached 18% 16% Multifamily (2-4 Units) 24% 22% Multifamily (5+ Units) 57% 60% Other (Including Mobile Homes) 1% 1% Apartment Market Quick Facts Current YoY Change Apartment Vacancy Rate 3.0% +0.2 Average Rent $1,130 1% Studio/One-Bedroom $988 1% Two-Bedroom $1,233 2% Three-Bedroom or Larger $2,002 1% YoY = year-over-year Notes: The current date is July 1, 2018. Current data for ‘occupied rental units by structure’ is American Community Survey, 2016. The 2010 ‘occupied rental units by structure’ data include adjustment by analyst. Sources: American Community Survey, 1-year data; RealPage, Inc. Apartment Rents and Vacancy Rates in the Madison HMA whereas enrollment at UW increased by approximately 1,000 students during the same period. During the 2017–2018 academic year, the student apartment vacancy rate was 4.2 percent, up from 3.4 percent during the previous academic year. Student households are estimated to comprise 12 percent of all renter households in the HMA. Rental Permit Activity Rental permitting, including permitting of general occupancy apartments, student apartments, and senior housing, is currently at a historically high level. As the national economy began to slow and goods-producing jobs began to decline in the HMA, rental unit permitting fell to an average of 800 units a year from 2007 through 2011. The local economy began to add jobs in 2010, but the number of rental units permitted remained low through 2011. As payrolls in the HMA returned to the previous high in 2012, rental permitting also rose to levels from the early 2000s, and then exceeded them, averaging 2,725 units each year from 2012 through 2017. During Sources: U.S. Average Annual Rental Permitting Activity in the Madison HMA Completed Projects in the Madison HMA Since 2012 the 12 months ending June 2018, rental permitting slowed to 2,775 units, down from 3,125 during the previous 12 months, in response to slowing rent growth and rising vacancy rates. Recently Completed Rental Properties During the current period of elevated rental permitting, construction has been concentrated in Dane County, mostly in the city of Madison and adjacent suburbs (Map 4). Approximately one-third of rental units permitted since 2012 were in the downtown Madison/UW campus neighborhood in the city of Madison. A recent zoning change along Washington Street on the east side of downtown Madison has permitted apartment construction in an area that was previously mostly office and retail use. Veritas Village, a 189-unit apartment on the east side of downtown Madison, currently in lease-up, is renting studio units for $995 to $1,350, one-bedroom units for $1,320 to $1,575, two-bedroom units for $1,995 to $2,295, and three-bedroom units for $2,540 to $2,755. On the far northeast side of the city of Madison, Hidden Creek Residences Apartments, Phase I, an 82-unit property, opened in 2017. Rents range from $940 to $1,015 for a studio, $1,155 to $1,240 for a one-bedroom, and $1,605 for a two-bedroom unit.

[Assistant] Forecast During the 3-year forecast period, demand is estimated for an additional 5,425 rental units. ( Estimates by analyst


[User] The Milwaukee HMA is in southeastern Wisconsin and is the largest MSA in the state, accounting for approximately one-fourth of the population. The city of Milwaukee, the largest city in the HMA, is approximately 90 miles north of the city of Chicago. Harley-Davidson, which is headquartered in the HMA, had a 115th- anniversary celebration in September 2018, attracting visitors, with an estimated economic impact of $95 million.

[Assistant] During the 12 months ending September 2018, payrolls increased by 6,600 jobs, or 0.8 percent, up from a gain of 2,800 jobs, or 0.3 percent, during the 12 months ending September 2017. The stronger growth is partially because of a shift from decline to growth in the manufacturing sector. The manufacturing sector added 2,700 jobs, or 2.3 percent, during the past 12 months, compared with a loss of 1,500 jobs, or 1.3 percent, during the previous 12 months. During the 3-year forecast period, nonfarm payrolls are expected to increase 0.5 percent annually, similar to the gains since 2017.


[User] Sales Market Slightly soft: Total home sales during the 12 months ending September 2018 were 26,150, largely unchanged from the previous 12 months.

[Assistant] The sales housing market is slightly soft. The sales vacancy rate is currently estimated at 1.8 percent, down slightly from 1.9 percent during 2010. The average new and existing home sales price during the 12 months ending September 2018 was up 2 percent from a year earlier and 2 percent above the previous peak of in 2007. During the 3-year forecast period, demand is estimated for 4,100 new sales units. The 680 homes under construction are expected to meet a portion of demand.


[User] Rental Market Soft: During the 12 months ending September 2018, rental permitting slowed to 2,950, down from 3,525 during the 12 months ending September 2017. Rental housing market conditions are currently soft. The rental market vacancy rate in the HMA is currently estimated at 9.6 percent, up from 7.8 percent in 2010. The number of rental units added, including new construction and existing housing shifting from the sales to the rental market, exceeded renter household growth, contributing to the soft conditions. During the 3-year forecast period, no demand is expected for additional rental units. Properties currently under construction within the HMA may be successfully absorbed, but the additions will likely result in an increased rental vacancy rate in the overall market and prolonged soft market conditions.

[Assistant] Units under construction as of October 1, 2018. The forecast period is October 1, 2018, to October 1, 2021. Source: Estimates by analyst 3-Year Housing Demand Forecast Sales Units Rental Units Milwaukee-Waukesha-West Allis HMA Total Demand 4,100 0 Under Construction


[User] Primary Local Economic Factors The city of Milwaukee, on the shore of Lake Michigan, was founded and grew because of job opportunities in the manufacturing sector. Industries that required large amounts of water, including brewing, leather goods, and metals, thrived in the Milwaukee HMA during the 20th century. As recently as 2005, manufacturing was the largest employment sector in the HMA, with 16 percent of total nonfarm payrolls. Nationally recognized manufacturers in the industries that supported growth in the 20th century, including MillerCoors and Harley- Davidson, continue to produce goods in the HMA, but manufacturing payrolls have declined to account for only 14 percent of jobs currently. Currently, among the 10 largest employers, 6 are in the education and health services sector and only 2 are in manufacturing ( Numbers may not add to totals because of rounding. Total nonfarm payrolls is in thousands. Excludes government employment. Source: Metropolitan Milwaukee Association Chamber of Commerce The stronger growth was partially because of a shift from decline to growth in the manufacturing sector, which added 2,700 jobs, or 2.3 percent, during the past 12 months, compared with a loss of 1,500 jobs, or 1.3 percent, during the previous 12 months. The opening of the North American headquarters for Foxconn in downtown Milwaukee and a $36 million expansion of the Milwaukee Tool headquarters, which generated 500 new jobs, contributed to the recent job growth in the sector. During the most recent 12 months, eight sectors added jobs, compared with seven sectors during the previous 12 months. The education and health services sector had the largest increase in jobs, adding 3,000 jobs, or 1.8 percent, from a year earlier and continuing a trend of job growth in the sector that began in 2012. Froedtert & the Medical College of Wisconsin opened two new facilities earlier in 2018; a professional office building in Milwaukee and a medical clinic in Oak Creek supported ongoing expansion in the sector. Completion in August 2018 of the $524 million Fiserv Forum, where the Milwaukee Bucks play, and expected completion of the $124 million streetcar rail network, “The Hop,” in November 2018 contributed to job growth in the mining, logging, and construction and the leisure and hospitality sectors. Offsetting job gains during the 12 months ending September 2018 were losses in three sectors, including 1,400 jobs, or 2.7 percent, in the financial activities sector and 1,300 jobs, or 1.1 percent, in the wholesale and retail trade sector. Closure of bank branches for First Citizens Bank and Wells Fargo along with closure of retail stores including the Bon-Ton stores, Toys“R”Us, Kmart, and Sears contributed to losses. Current Conditions – Unemployment The unemployment rate is currently at a historical low, matching the all-time low recorded in 1999. The low during the previous period of job growth was 4.9 percent in 2006, and the high was 9.4 percent in 2010. Currently, the national unemployment rate is 4.0 percent. U.S. 12-Month Average Unemployment Rate in the Milwaukee HMA and the Nation From 2001 through 2003, payrolls declined by an average of 13,200 jobs, or 1.5 percent, annually, with nearly three-fourths of job loss in the manufacturing sector. Job losses during the period of decline included approximately 5,000 jobs in the machinery manufacturing industry and 2,000 jobs in the fabricated metal product manufacturing industry. A period of payroll growth occurred from 2004 through 2007, with job growth averaging 6,500, or 0.8 percent, annually. The education and health services sector added the most jobs during the period, accounting for 45 percent of job growth. Jobs in the manufacturing sector declined from 2004 through 2006 but at a slower rate than the 2001-through-2003 period and were unchanged in 2007. Nonfarm payrolls averaged in 2007, the highest level since 2001, but payrolls fell from 2008 through 2010 to an average of during 2010, the lowest level since 1994. Like the period of decline in the early 2000s, the manufacturing sector had the largest share of losses, accounting for nearly 40 percent of jobs lost from 2008 through 2010. Nonfarm payrolls have been rising since 2011, returning to 2007 levels during 2016, nearly 2 years after the nation recovered. Jobs added during 2017 and 2018 are considered postrecession expansion. Since 2017, job growth has averaged 5,000, or 0.6 percent, annually. From 2008 through 2010, payrolls fell by an average of 17,600 jobs, or 2.1 percent, annually. During the same period, payrolls in the nation fell by 1.9 percent annually. Payrolls in the HMA declined in 9 of the 11 sectors. Jobs in the goods-producing sectors accounted for nearly 60 percent of the loss, with the manufacturing sector declining an average of 6,800 jobs, or 5.4 percent, annually, and the mining, logging, and construction sector declining an average of 3,300 jobs, or 10.2 percent, annually. Declining sales in products manufactured in the HMA contributed to the job loss, as companies reduced payrolls. Shipments of domestic beer, which includes MillerCoors products, fell an average of nearly 6 percent a year, nationally (Beer Marketer’s Insights), and domestic shipments of Harley Davidson motorcycles fell an average of 18 percent, annually (Harley Davidson). Job growth in the education and health services sector partially offset losses. Payrolls in the sector increased by an average of 2,400 jobs, or 1.7 percent each year from 2008 through 2010. During the period, Children’s Hospital and Health System completed a 13-story addition, Froedtert Hospital opened a cancer research facility, and Columbia St. Mary’s and Wheaton Franciscan each built new or expanded existing healthcare facilities. 2011 through 2016 Payrolls in the Milwaukee HMA were in recovery from 2011 through 2016, taking 6 years to regain the jobs lost during the previous 3 years. The HMA added an average of 9,200 jobs, or 1.1 percent, annually, during the period. Total nonfarm payrolls exceeded the prerecession peak for the first time during 2016, averaging jobs, or 2,500 above the average of jobs in 2007. By comparison, the nation returned to prerecession payroll levels in 2014. Job losses in the education and health services sector in 2011 and in the manufacturing sector in 2016 offset gains in other sectors, contributing to the relatively slow recovery in the HMA. Despite adding jobs each year during the Great Recession, the education and health services sector had a short period of payroll decline as other sectors began to recover. The number of jobs in the sector fell by 2,000, or 1.4 percent, during 2011 before increasing by an average of 4,300 jobs, or 2.8 percent, annually from 2012 through 2016. The decline during 2011 was partially because of a loss of 1,200 jobs at hospitals. Multiple new healthcare facilities opened during the 2012-through-2016 period, including a $120 million transplant center, part of the Froedtert & the Medical College of Wisconsin system. Marquette University, the largest private university in the HMA, added approximately 100 employees, also contributing to job growth in the sector. The manufacturing sector added an average of 1,600 jobs, or 1.4 percent, annually from 2011 through 2015, the first period of gains for the sector since 1998. A new manufacturing industry, water technology, which builds on existing local expertise in water filtration, developed with the beer-brewing industry, emerged during the early 2010s, and supported job gains in the sector. Water-related manufacturing businesses supported $211.6 million in capital investment from 2010 through 2014 in the Water Technology District, an area south of downtown Milwaukee and were estimated to include more than 200 companies in the HMA (The Water Council). Despite growth in the early 2010s, some manufacturers struggled to return to prerecession levels of production. Harley-Davidson, which had an increase in domestic motorcycles shipped each year from 2011 through 2014, has had a decline in domestic shipments each year since 2015. During 2016, manufacturing jobs fell by 1,800, or 1.5 percent. Closure of a Joy Global crane manufacturing facility resulted in the loss of 130 jobs, contributing to the 1,000 jobs lost in the machinery manufacturing industry during 2016.

[Assistant] Employment Forecast During the next 3 years, payrolls are expected to increase an average of 0.5 percent annually, continuing at a pace similar to the average growth rate since 2017. Another expansion at Milwaukee Tool, adding up to 350 jobs, and a new plant with 450 additional jobs for the Komatsu Mining Corporation are expected to contribute to job growth. Also expected to support job growth during the 3-year forecast period is a new $100 million corporate venture capital fund that was announced in early 2018. Four companies with corporate offices in the HMA—Northwestern Mutual, Advocate Aurora Health, Johnson Controls, and Foxconn—will contribute to the fund, which is expected to invest in startup companies in the healthcare, technology, manufacturing, and financial services industries.


[User] Population growth has slowed since 2010, partially because of the increasing share of residents age 60 and over. Population Trends Population growth has been relatively slow in the Milwaukee HMA since 2000 because of net out- migration. Since 2000, population growth in the HMA has generally been higher during periods of payroll decline and early recovery and lower during periods of job growth. Job growth in the HMA has tended to lag behind the nation during periods of economic expansion, giving residents incentive to move away for job opportunities elsewhere. Conversely, residents have been more likely to stay in the HMA during periods of job losses for the nation, as opportunities elsewhere are limited. Census Bureau population estimates as of July 1). Net natural change has declined during the current decade compared with the 2000s, further slowing population growth. From 2000 to 2003, a period of declining payrolls in the HMA, population growth averaged 5,850 people, or 0.4 percent, annually, including out- migration of 2,475. From 2003 to 2007, as the rate of job growth in the nation exceeded the rate in the HMA, population growth slowed to an average of 2,675 people, or 0.2 percent, annually, and net out-migration rose to 6,050 people annually. From 2007 to 2014, during the Great Recession and through recovery for the nation, population growth in the HMA averaged 6,350 people, or 0.4 percent a year, including net out-migration of 1,500 people a year. As payrolls in the nation shifted from recovery to expansion, net out-migration from the HMA accelerated and population growth slowed. Since 2014, population growth has averaged 530 people, or less than 0.1 percent, annually, including net out-migration of 5,700 people a year. Components of Population Change in the Milwaukee HMA, 2000 Through the Forecast Note: Net natural change and net migration totals are average annual totals over the time period. Sources: U.S. Census Bureau; Bureau of Labor Statistics

[Assistant] Population by Age in the Milwaukee HMA Source: American Community Survey, 2010 and 2017, 1-year data Population Forecast Population growth is expected to be higher during the 3-year forecast period compared with the average annual increase since 2014 but lower than the average annual increase from 2007 to 2014. Recently announced expansions in the manufacturing industry are expected to reduce net out-migration. During the next 3 years, the population of the HMA is expected to increase by an average of 2,000, or 0.1 percent annually (Table 3). Enrollment at the largest university in the HMA, the University of Wisconsin- Milwaukee (UWM) has fallen from a high of 30,500 in 2010 to 25,400 in 2017. It is expected that enrollment changes had a limited effect on net migration because 70 percent of students resided in the HMA before enrolling (UWM, 2017) and the share of residents age 20 to 39 has remained relatively steady. Student households are estimated to currently compose 3 percent of all renter households, a relatively small share of renter households, compared with an estimated 12 percent of all renter households in the Madison, Wisconsin, metropolitan area, where the largest University of Wisconsin campus is located.


[User] The fastest growing area in the HMA is the downtown area within the city of Milwaukee (Map 3), with population growth in downtown census tracts averaging more than 5 percent a year (2007–2011 and 2012–2016 American Community Survey 5-year data). The areas with the largest population decline are also in the city of Milwaukee, with several census tracts on the north and southwest sides each declining by an average of 2 percent annually.

[Assistant] Since 2010, the number of households has increased by an average of 1,850, or 0.3 percent, annually, compared with an increase of 3,450, or 0.6 percent, a year from 2000 to 2010. During the forecast period, the number of households is expected to increase more slowly, by an average of 1,475, or 0.2 percent, annually, partially because of the slowdown in population growth.


[User] Recent household growth has been concentrated in the outlying counties, where population growth has been fastest. Approximately 90 percent of the increase in households since 2010 has occurred in Waukesha, Washington, and Ozaukee Counties.

[Assistant] Since 2010, all household growth has been attributed to renter households, which has resulted in declining homeownership. The homeownership rate is currently estimated at 58.9 percent. During the forecast period, the homeownership rate is expected to continue to decline but at a slower rate.


[User] Current Conditions The home sales market in the Milwaukee HMA is currently slightly soft but improving. The average home sales price, including new and existing homes, has generally trended upward since 2014 and exceeded the prerecession high for the first time in 2017. The number of homes sold remained largely unchanged during the most recent 12 months but has trended upward since 2012 despite a significant decline in distressed sales. The average home sales price during the 12 months ending September 2018 was up 1 percent from a year earlier and 1 percent higher than the previous peak of in 2007 (CoreLogic, Inc., with adjustments by the analyst). Total home sales were 26,150, largely unchanged from the 12 months ending September 2017 ( CoreLogic, Inc., with adjustments by analyst during the past 24 months. Despite improving economic conditions since 2011, new home sales have remained relatively low due in part to the large inventory of comparable existing homes for sale at competitive prices. From 2012 through 2017, new home sales averaged 820 a year. During the 12 months ending September new homes were sold, down 7 percent from the 790 new homes sold during the previous 12 months. Existing Home Sales Existing home sales peaked in 2005, with 34,900 homes sold, and fell by an average of 3,400, or 14 percent, a year to a low of 14,450 in 2011. As payrolls recovered and expanded, existing home sales have also risen. From 2012 through 2017, existing home sales increased by an average of 1,850, or 10 percent, annually. Distressed sales, including real estate owned (REO) and short sales, constituted less than 1 percent of existing sales in 2005, peaked at 24 percent in 2011, and have fallen to approximately 6 percent of existing sales during the 12 months ending September 2018. Existing home sales totaled 25,450 during the past 12 months, relatively unchanged from the 25,400 homes sold during the previous 12 months. Delinquent Mortgages The rate of seriously delinquent (90 or more days delinquent or in foreclosure) home loans and REO properties in the HMA peaked below, and remains below, the nation. During September 2018, the rate was 1.6 percent, down from 2.0 percent a year earlier and down from a peak of 6.2 percent in early 2010 (CoreLogic, Inc.). The rate for the nation was 1.8 percent in September 2018, down from 2.2 percent in September 2017 and from a peak of 8.6 percent in early 2010. New Home Sales Prices Average new home sales prices exceeded the 2007 peak for the first time during 2017. 12-Month Average Sales Totals by Type of Sale in the Milwaukee HMA Source: CoreLogic, Inc., with adjustments by analyst During the 12 months ending September 2018, the average new home sales price was up 1 percent from a year earlier, and approximately $4,600, or 2 percent, above the average price for a new home in 2007. Existing Home Sales Prices Existing home sales prices also exceeded the 2007 peak for the first time during 2017, and prices have continued to rise as the number of distressed homes has declined. During 2007, existing home sales prices averaged but then fell by an average of $7,575, or 4 percent, annually to a low of in 2011. From 2012 through 2017, prices increased by an average of $6,250, or 3 percent, annually. During the 12 months ending September 2018, existing home sales prices averaged up 2 percent from the previous year and 5 percent above the average price for an existing home in 2007. Approximately one-half of existing home sales during the 12 months ending September 2018 were below . Homes priced between and accounted for 40 percent of sales, and homes priced above accounted for 6 percent of sales. A larger number of lower priced homes were in Milwaukee County, compared with the rest of the HMA. Sources: U.S. Census Bureau, Building Permits Survey; estimates by analyst Table 5. Permitting fell by an average of 890 homes a year from 2006 through 2009 and averaged only 960 homes a year from 2009 through 2011. The number of sales units permitted increased during the economic recovery, rising by an average of 150 homes a year from 2012 through 2016, peaking at 1,700 homes during 2016. Permitting slowed during the 12 months ending September 2017 but again increased during the 12 months ending September 2018 to 1,750 homes, up 8 percent from the previous 12 months (preliminary data). Development of new condominiums has been limited since the late 2000s. Less than 5 percent of homes built since 2009 have been condominiums. Annual Sales Permitting Activity in the Milwaukee HMA For-sale housing has accounted for approximately 40 percent of all housing units built since 2012, compared with approximately 75 percent of housing built from 2000 to 2005. Recent new for-sale housing development has been concentrated in the suburban parts of the HMA, where population growth has been fastest and undeveloped land is readily available. Approximately 40 percent of the single-family homes, townhomes, and condominiums built since 2012 are in Waukesha County, with one-fourth in Washington County and 15 percent in Ozaukee County. Only 10 percent of the for-sale housing units built in the HMA since 2012 are in Milwaukee County, which has the largest share of jobs and population but also the slowest rate of population growth and the smallest amount of vacant, undeveloped land.

[Assistant] Forecast During the next 3 years, demand is expected for an additional 4,100 homes (Table 5). The 680 homes under construction are expected to meet a portion of demand. Demand is expected to increase during each year of the forecast period as job growth continues but remain strongest for homes priced below in the outlying counties.


[User] Rental Market Conditions and Recent Trends Rental housing market conditions are currently soft. The rental market vacancy rate in the Milwaukee HMA is currently estimated at 9.6 percent, up from 7.8 percent in 2010 ( The current date is October 1, 2018. Sources: Occupied rental unit data: American Community Survey, 2017 1-year data; apartment data: Real Page, Inc. Permitting fell to an average of only 1,025 units a year from 2007 through 2009 and then returned to levels similar to the early 2000s, with an average of 1,425 units permitted each year from 2010 through 2013. Rental permitting rose each year from 2014 through 2017, with an average increase of 630 units a year, to a high of 3,800 units permitted in 2017. During the 12 months ending September 2018, rental permitting slowed to 2,950 units, down from 3,525 units during the 12 months ending September 2017 (preliminary data), as developers waited to see the market reaction to the high number of recently completed units.

[Assistant] In the outlying counties, some apartment projects are being built in phases to allow for slower absorption. The first 35 units of the 172-unit Saxony Village apartments in the suburban community of Germantown, in Washington County, opened earlier in 2018. Asking rents are and $1,795 for studio, one-bedroom, two-bedroom, and three-bedroom units, respectively, but all rents are currently reduced by $200 per month to encourage lease up. An additional 35 units and clubhouse are under construction, expected to open in Spring 2019, with all units expected to be complete by 2021. Forecast No demand for additional rental units is expected during the 3-year forecast period ( Estimates by analyst


[User] The HMA is contained within the larger Chicago-Naperville-Elgin, IL-IN- WI Metropolitan Statistical Area (MSA). For purposes of this analysis, the HMA is divided into three submarkets: (1) the Central Counties submarket, which includes the six Illinois counties in the Chicago-Naperville-Arlington Heights, IL Metropolitan Division; (2) the Western Counties submarket, which includes the two Illinois counties in the Elgin, IL Metropolitan Division; and (3) the Northern Counties submarket, which includes the two counties in Illinois and Wisconsin that make up the Lake County-Kenosha County, IL-WI Metropolitan Division.

[Assistant] Units under construction as of April 1, 2019. The forecast period is April 1, 2019, to April 1, 2022. Source: Estimates by the analyst 3-Year Housing Demand Forecast Sales Units Rental Units Central Counties Total Demand Under Construction Western Counties Total Demand Under Construction Northern Counties Total Demand Under Construction Greater Chicago HMA Total Demand Under Construction The Greater Chicago HMA emerged from the Great Recession during 2011. From 2011 through 2015, nonfarm payrolls increased by an average of 68,200, or 1.7 percent, annually; however, since 2016, annual job growth has declined to 1.0 percent, or an average increase of only 42,800 jobs, annually. During the forecast period, nonfarm payroll growth is expected to slow further to an average rate of 0.7 percent annually.


[User] The sales market in the HMA is slightly soft, with an estimated sales vacancy rate of 1.7 percent, down from 2.7 percent in 2010. During the 12 months ending March 2019, approximately new and existing homes sold, a decrease of 7,100 homes from a year earlier; 24 percent of this decline was among real estate owned (REO) home sales (Metrostudy, A Hanley Wood Company, with adjustments by the analyst). During the next 3 years, demand is estimated for 6,175 new sales units; the 2,600 units currently under construction will satisfy a portion of this demand. Rental market conditions are balanced, with a current estimated rental vacancy rate of 6.6 percent, down from 9.3 percent during 2010. Apartment market conditions are also balanced, with a 5.3-percent vacancy rate as of the fourth quarter of 2018, down from 5.8 percent a year earlier (RealPage, Inc.). Although demand is estimated for 18,050 new apartment units during the next 3 years, there are approximately 20,200 new units currently under construction. Sales Market Slightly Soft: During the 12 months ending March 2019, new and existing home sales declined nearly 5 percent. Institutions of higher education, including the University of Chicago in the city of Chicago and Northwestern University in the city of Evanston, and more than 60 additional 4-year institutions, make the HMA a center of higher education. The HMA is also a regional hub for health care, with several large research and teaching hospitals. Since the Great Recession, growth of the leisure and hospitality sector has been strong, and tourism counts have set records during the past 8 years. The transportation and utilities sector has also increased in significance in the HMA because of expansions at O’Hare International Airport and general economic growth, locally and regionally. Manufacturing sector jobs declined the most, falling nearly 6 percent, or by 31,100 jobs, annually and contributed more than 80 percent of nonfarm payroll losses. Job losses in the manufacturing sector included steel and automobile parts manufacturing and food manufacturing. In the service-providing sectors, the professional and business services sector Name of Employer Nonfarm Payroll Sector Number of Employees U.S. Government Government 41,500 City of Chicago Government 31,160 Cook County, Illinois Government 21,316 Advocate Health Care Education & Health Services 19,049 Northwestern Memorial Healthcare Education & Health Services 16,667 University of Chicago Education & Health Services 16,583 JPMorgan Chase & Co. Financial Activities 15,701 State of Illinois Government 14,690 Amazon.com, Inc. Wholesale & Retail Trade 13,240 United Continental Holdings Inc. Transportation & Utilities 12,994 Data are as of December . Source: Crain’s Chicago Business Notes: Total nonfarm payroll is in thousands. Percentages may not add to 100 percent due to rounding. 12-Month Average Nonfarm Payrolls in the Greater Chicago HMA Note: Twelve-month moving average. Sources: ; National Bureau of Economic Research 2005 Through 2007 From 2005 through 2007, economic conditions in the HMA recovered, although at a slower pace than the nation. Nonfarm payrolls in the HMA rose 1.1 percent annually, or by 44,500 jobs, compared with national job growth averaging 1.5 percent annually. The professional and business services sector recovered strongly in the HMA, gaining an average of 20,700 jobs, or 3 percent, a year, and contributing nearly one-half of the job growth during this time. The education and health services sector, continuing growth from the previous period, and the leisure and hospitality sector added an average of 12,600 and 7,800 jobs, or 2.4 and 2.2 percent, annually. The manufacturing sector continued to decline, albeit at a much slower rate, falling an average of 1.3 percent annually, or by 6,000 jobs each year. 2008 Through 2010 The Great Recession, which occurred nationally from December 2007 to June 2009, significantly impacted the HMA, with nonfarm payrolls declining an average of 2.3 percent, or by 97,100 jobs, annually from 2008 through 2010. By contrast, national nonfarm payroll job losses averaged 1.9 percent annually. During these 3 years, every payroll sector declined except the education and health services sector, which added an average of 14,400 jobs, or 2.6 percent, annually, and the government sector, which was relatively stable. The government sector benefited from a 1.5-percent average annual increase in federal government payrolls, primarily from temporary jobs added to support the 2010 Decennial Census effort. The worst single year for job losses in the HMA was during 2009, when payroll jobs fell 5.2 percent, or by jobs. As in previous periods, the manufacturing sector was particularly hard-hit, falling an average of 24,900 jobs, or nearly 6 percent, annually from 2008 through 2010. By 2010, the manufacturing sector was down by 21,700 jobs, or nearly 5 percent, each year and had become the sixth-largest sector during 2010 compared with the third-largest sector in 2000. Jobs in the wholesale and retail trade sector declined from 2008 through 2010 by an average of 19,000 jobs, or nearly 3 percent, annually. Jobs in the professional and business services and the financial activities sectors shrank, averaging losses of 18,700 and 13,000 jobs each, or 2.7 and 4.2 percent, annually and respectively. The HMA did not recover all the jobs lost during the Great Recession until September 2015; by contrast, nationally, nonfarm payroll jobs surpassed the pre-recession peak 1 year earlier, during September 2014. From 2011 through 2015, nonfarm payrolls in the HMA expanded by an average of 68,200 jobs or 1.7 percent annually, the same annual rate that jobs grew nationally. Job growth in the HMA was widespread, and only two payroll sectors declined: the information sector fell by an average of 100 jobs annually, or 0.2 percent, and the government sector declined by an average of 2,800 jobs, or 0.5 percent, annually. The Federal Government accounted for most of the decrease in the government sector, contracting by 1,400 jobs annually. The worst year for job losses in the government sector was 2011 when 10,100 government jobs were lost with 43 percent of those losses in the federal government subsector. State and local governments also shrank their payrolls because of declining revenues resulting from the Great Recession, as sales tax, property tax, and income tax receipts were all negatively impacted. The professional and business services sector, which added an average of 24,900 jobs, or 3.5 percent, annually, led growth in the HMA from 2011 through 2015. Among the largest increases in this sector during the period was Capital One Financial Corporation, which added more than 600 jobs at downtown and suburban locations of Chicago. Also during this time, Finland-based Nokia Corporation acquired the digital-mapping Navteq Corporation and added an undetermined number of jobs; currently, the company, now known as HERE Technologies, employs approximately 1,200 people in the Greater Chicago HMA. The education and health services sector added an average of 13,000 jobs, or 2.1 percent, annually from 2011 through 2015, maintaining steady growth reported since 2000. Because of the national economic recovery, tourism has risen strongly in the Greater Chicago HMA, and jobs in the leisure and hospitality sector rose by an average of 11,100, or 2.9 percent, annually. Nonfarm payroll job growth has continued to be positive in the HMA from 2016 through 2018, albeit at a slower rate than the previous period. While the national economy has continued adding jobs during this period at an average of 1.7 percent annually, nonfarm payroll job growth in the HMA has slowed 0.6 percentage point to an average of 1.1 percent, or 48,000 jobs added, annually. The unemployment rate recently peaked at 11.0 percent during May 2010, during the local economic contraction, and has trended down since. The current unemployment rate is slightly above the national rate of 3.8 percent and below the rate of 4.3 percent for the state of Illinois; in Wisconsin, the unemployment rate averaged 3.0 percent during the 12 months ending March 2019. 12-Month Average Unemployment Rate in the Greater Chicago HMA and the Nation Note: The current date is April 1, 2019. 36,800 jobs, during the previous 12 months. Leading job growth in the 12 months ending March 2019 was the education and health services sector, which added 11,500 jobs, or 1.7 percent, followed by the transportation and utilities and the professional and business services sectors, with growth of 9,500 and 8,800 jobs, or 4.2 and 1.1 percent, respectively. Growth in the sector has been concentrated in the health services and social assistance industry. Adding to jobs in this industry, the University of Chicago opened a 188-bed Level I Trauma Center near the south side of the Hyde Park neighborhood in the city of Chicago in April 2018. Adding to jobs in the transportation and utilities sector during the past 12 months, third-party logistics provider C. H. Robinson moved into a new office space in the city of Chicago during the summer of 2018 and, although job totals are not available, the customer base of the company has grown more than 25 percent during the past 5 years. Tourism From 2015 to the current date, the leisure and hospitality sector has had the largest number of net-job increases, averaging 10,900 jobs, or 2.7 percent, annually. Because of the economic recovery both in the HMA and nationally, tourism rebounded strongly after the Great Recession, and tourist visits to the Greater Chicago HMA have set records for the past 5 consecutive years Tourist Visits to the Chicago MSA and the Increase of Leisure and Hospitality Jobs Note: The number of leisure and hospitality jobs are based on 12-month average data for each year. Sources: Choose Chicago; Commuting Patterns Cook County, Illinois, which includes the city of Chicago, is the economic center of the HMA, and the Central Counties submarket currently accounts for approximately 85 percent of nonfarm payroll jobs in the HMA ( Columns may not add to 100 percent due to rounding. Source: 2015 U.S. Census Journey to Work close to 40 percent ( Estimates by the analyst The net natural change and net-migration trends identified for the HMA closely reflect the trends for this large submarket, and these trends are generally attributable to Cook County. During the previous decade, the population in the submarket rose an average 12,750 annually, or 0.2 percent, because net natural change averaging 54,550 people annually exceeded net out-migration averaging 41,800 people annually. From 2010 to 2013, following the recession in the HMA and the onset of the recovery, net out-migration fell to an average of 17,150 annually, and the population rose by 26,450 annually, or 0.4 percent. From 2013 to 2016, net out-migration surged, averaging 45,550 annually, and the population fell an average of 5,900 annually, with declines averaging 0.1 percent. This trend has intensified since 2016; net out-migration rose to average 51,350 annually and the rate of population loss rose to average 0.3 percent or 21,200 people annually. Within the submarket, population dynamics among counties vary. The fastest growing county in the HMA is Kendall County, where the population has grown an average of 1.3 percent annually since 2010 to an estimated as of July 1, 2018 (U.S. Census Bureau, Population Estimates Program). The other four counties in the submarket, excluding Kendall and Cook, are also estimated to have either grown since 2010 or reported very slight declines. Most of the population loss from the submarket is estimated to have come from the city of Chicago, where population loss outside of the downtown core is significant. By contrast, the population in the downtown core, and several proximate neighborhoods, is increasing. Please see the “Chicago Series: Focus on Downtown Chicago” for additional information on population dynamics in the city of Chicago. Western Counties Submarket The population of the Western Counties submarket is currently estimated at accounting for approximately 7 percent of the HMA population. The submarket consists of Kane and DeKalb Counties and is located west of the Central Counties submarket. Kane County contributes more than 80 percent of the population in the submarket and has grown an average of 0.4 percent annually from 2010 to 2018, while DeKalb County has declined slightly. From 2000 to 2005, relocation into the Western Counties submarket, largely from the city of Chicago and Cook County, led to net in-migration averaging 9,100 people and population growth of nearly 3 percent, or 15,400 people annually. Net in-migration fell modestly during the next 2 years, averaging 6,200 people annually from 2005 to 2007, and population growth averaged 12,850 annually, or 2.2 percent. From 2007 to 2012, including the Great Recession and the onset of recovery, net out-migration averaged 300 people annually, and the rate of population growth fell to 0.8 percent, averaging 5,150 annually. Since 2012, net out-migration has risen and population growth has fallen. Population growth averaged 2,675 annually from 2012 to 2014, and 1,800 annually since 2014, growth rates of 0.4 and 0.3 percent annually, respectively. Northern Counties Submarket The population of the Northern Counties submarket is currently estimated at contributing approximately 10 percent of the total population in the HMA. The submarket includes Lake County in Illinois and Kenosha County in Wisconsin. Lake County is in closer proximity to the city of Chicago and is the larger county by population, contributing 81 percent of the submarket’s total residents. This submarket has not recorded net in-migration since 2006. From 2000 to 2006, net-migration into the Northern Counties submarket averaged 1,775 people annually and the population rose by 9,200 annually, or 1.1 percent. From 2006 to 2011, migration shifted to net out-migration, averaging 2,725 people annually and population growth fell to average 0.4 percent, or 3,400 annually. From 2011 to 2013, net out-migration slowed slightly, to 2,675 people annually, on average, but because net natural change also fell, population growth dropped again, to 0.2 percent annually, an average of 1,650 annually. Since 2013, net natural change has continued to decline and net out-migration has increased, resulting in population decline of 460 annually, or 0.1 percent. Changes in households by submarket have generally followed population trends in direction; the increase in net out-migration from the HMA resulted in fewer households. Since 2010, households in the HMA rose 0.3 percent annually, on average, gains of 9,575 households annually; this is approximately one-half the annual gains during the previous decade, when households increased an average of 18,000 annually, or 0.6 percent. It is estimated that the number of households increased in the early 2010s, before declining around the same time that the population started to decline in 2014. By submarket, households rose by averages of and 1,325 annually since 2010, or growth rates averaging 0.2, 0.7, and 0.4 percent annually, for the Central Counties, Western Counties, and Northern Counties submarkets, respectively. As with the population trends, the 2010-to-current household changes are significantly below those recorded during the previous decade, when households grew at annual rates of 0.4, 2.4, and 1.1 percent annually, for the Central Counties, Western Counties, and Northern Counties submarkets, respectively. The homeownership rate fell in each submarket, but the declines were more significant in the Western Counties and Northern Counties submarkets. Homeownership rates fell after the Great Recession when significant numbers of owner households faced foreclosures and banks strengthened lending standards, making homeownership more difficult. In the Central Counties submarket, more heavily urban than the other two submarkets, there is a higher propensity to rent in general, a dynamic typically associated with city living. Contributing to this trend, recent arrivals in the city of Chicago, many who work in the growing professional and business services sector, are more likely to choose to rent. In the Central Counties submarket, the homeownership rate fell from 63.8 in 2010 to 62.2 percent currently. By comparison, in the more suburban Western Counties and Northern Counties submarkets, where the homeownership rate is higher than in the Central Counties submarket, homeownership rates fell further, generally because of the foreclosure crisis but also because of tenure preferences of new arrivals. Homeownership rates are currently estimated at 69.9 and 71.5 percent for the Western Counties and the Northern Counties submarkets, down from 73.8 and 74.8 percent in 2010, respectively. Because of expected employment growth, predominately in the Central Counties submarket, net out-migration from this submarket is estimated to fall slightly, averaging 49,000 people annually. In the Western Counties and Northern Counties submarkets, net out-migration is expected to average 2,000 and 4,300 people annually. Population in the Central Counties and the Northern Counties submarkets are expected to fall by 21,100 and 1,250 people annually, on average during the next 3 years, or declines averaging 0.3 and 0.1 percent, respectively. In the Western Counties submarket, by contrast, the population is expected to increase by an average of 1,250 annually, or 0.2 percent. During the next 3 years, households in the HMA are expected to be essentially stable at 3.29 million. Households will decline in the Central Counties submarket, by 2,575 annually, or 0.1 percent, and will increase in the Western and Northern Counties submarkets, by averages of 800 and 300 annually, or 0.4 and 0.1 percent, respectively. Current Conditions The sales housing market in the Greater Chicago HMA is currently slightly soft. The current vacancy rate is estimated at 1.7 percent, down from 2.7 percent in April 2010 ( Metrostudy, A Hanley Wood Company, with adjustments by the analyst REO = real estate owned. Source: Metrostudy, A Hanley Wood Company, with adjustments by the analyst at 35 percent during 2011 and comprised nearly 9 percent of all existing home sales during the current 12-month period. Regular resale home prices remained relatively steady since 2013, hovering around an average of from 2013 through 2017. The previous pre-recession high for average regular resale home prices was during 2008. The average home sales price for an REO home during the 12 months ending March 2019 was approximately 4 percent higher than a year earlier. New home sale prices, in contrast to new home sales, have exceeded pre-recession values, despite a recent downturn of less than 1 percent during the current 12-month period, when the average new home sales price was . Following a recent low of during 2011, the average new home sales price has increased an average of 6 percent annually, to during 2017. The average new home sales price of during 2018 was an all-time high for the HMA. REO Sales and Delinquent Mortgages In March 2019, 1.9 percent of home loans in the Greater Chicago HMA were seriously delinquent or had transitioned into REO status, down from 2.5 percent a year earlier, and well below the peak of 10.6 percent in January 2012 (CoreLogic, Inc.). The 1.9 percent rate of seriously delinquent mortgages in the HMA is slightly below the state of Illinois’ rate of 2.0 percent in March 2019, down from 2.4 percent a year earlier. The national rate, by contrast, is 1.6 percent as of March 2019, down from 2.3 percent a year earlier. Housing Affordability Homeownership in the Greater Chicago HMA is generally affordable. The National Association of Home Builders (NAHB) developed the Housing Opportunity Index (HOI), which represents the share of homes sold that would have been This index is available for metropolitan divisions, which were used to define the three submarkets in the HMA. For these submarkets, the HOI as of the first quarter of 2019 was 68.1 and 75.5, both increases from 66.5 and 71.5 a year earlier in the Central Counties and the Northern Counties submarkets, respectively. For both submarkets, the indices were approximately 50 during late 2008 and the onset of the Great Recession in 2009, which significantly impacted sales housing markets. Increased REO sales and foreclosures contributed to declining home sales prices. Following the recovery from the Great Recession, the index has not exceeded 80 for either submarket. The NAHB further ranks 239 metropolitan divisions and metropolitan areas according to their HOI ranking. As of the first quarter of 2019, the Central Counties, the Western Counties, and the Northern Counties submarkets ranked 138th, 102nd, and 108th, respectively, indicating that, among 239 metropolitan divisions and areas, the Central Counties submarket was more affordable for homebuying than 58 percent of areas, the Western Counties submarket was more affordable than 43 percent of areas, and the Northern Counties submarket was more affordable than 45 percent of areas.

[Assistant] Forecast During the 3-year forecast period, demand is estimated for 6,175 new single- family homes, townhomes, and condominiums in the HMA ( The forecast period is from April 1, 2019, to April 1, 2022. Source: Estimates by the analyst


[User] The current vacancy rate is estimated at 1.8 percent, down from 2.7 percent in April 2010, when conditions were soft. As of March 2019, the submarket had 3.2 months of available for-sale housing inventory, up from 3.1 months of supply a year earlier ( Metrostudy, A Hanley Wood Company, with adjustments by the analyst Single-Family Home and Townhome Sales Sales of new and existing single-family homes and townhomes in the submarket rose following the Great Recession, until approximately 2013, and have remained steady since then. During the 12 months ending March 2019, approximately 67,750 new and existing single-family homes and townhomes sold, 4 percent fewer than were sold a year earlier (Metrostudy, A Hanley Wood Company, with adjustments by the analyst). The current decline in sales is because of trends in population and households; the population in this submarket began to decline during 2013, declines that have intensified since 2016. From a recent low level of 39,150 single-family homes and townhomes sold during 2011, sales rose strongly, increasing more than 27 percent annually, on average, reaching 63,200 sales during 2013. Since 2013, sales have risen slowly, growing an average of 3 percent annually, before the current decline, which began in mid-2018. During the 12 months ending March 2019, sales of new and existing condominium units in the Central Counties submarket fell approximately 3 percent, to 46,450 units sold, following a 6-percent increase a year earlier. Condominium sales in this submarket are heavily concentrated in Cook County. Despite Cook County and the city of Chicago accounting for 71 and 37 percent of the submarket’s population, respectively, these areas accounted for 84 and 53 percent of condominium home sales in the submarket (2012–2017 American Community Survey [ACS], 5-year estimates). Home Sale Prices Although home sales totals for all unit types have recently declined, home sales prices, on average, are increasing. During the 12 months ending March 2019, the average home sales price for single-family homes and townhomes was more than 1 percent above the average sales price a year earlier. The average sales price for a condominium unit was or nearly 2 percent above the average a year earlier. Since 2012, average sales prices for each sales type have grown slowly, averaging increases of 4 percent annually for single-family homes and townhomes, to a 2018 average sales price of and averaging increases of 5 percent annually, to a 2018 average sales price of for condominium units. REO Properties and Delinquent Mortgages The rate of seriously delinquent home loans and REO properties in the Central Counties submarket has been higher than rates in the other two submarkets, the state of Illinois, or the nation, in part, because of the relatively higher unemployment rates among Chicago residents. The higher rate of seriously delinquent home loans and REO properties in the Central Counties submarket is also due to higher population loss, particularly in Cook County and parts of Chicago, leading to lower demand for homes in those areas. In March 2019, approximately 2 percent of loans in the submarket were seriously delinquent or had transitioned into REO status, down from 2.6 percent during March 2018, and below the peak level of 11.0 percent during January 2012 (CoreLogic, Inc.). Sales Construction Activity Sales building activity, as measured by the number of single-family homes, townhomes, and condominium units permitted, has been low since the Greater Chicago HMA emerged from the Great Recession. Construction intended for owner occupancy totaled 5,150 sales units during the 12 months ending March 2019, nearly 13 percent fewer than were permitted during the 12 months ending March 2018 (preliminary data with adjustments by the analyst). 12-Month Average Sales Price by Type of Sale in the Central Counties Submarket Source: Metrostudy, A Hanley Wood Company, with adjustments by the analyst Sales units permitted remained low from 2009 through 2010, averaging 2,950 units permitted each year. Since the impacts of the Great Recession ended in the HMA and demographic trends improved through 2012, sales units permitted have also increased. From 2011 through 2016, units permitted rose an average of 13 percent annually, to a 2016 level of 6,350. In addition, the proportion of condominium units to all sales units permitted has fallen; from 2001 through 2006, more than 30 percent of all sales units permitted were condominiums; during 2007, nearly 43 percent of all sales units permitted were for condominiums. That value declined to fewer than 13 percent of units permitted during 2013, before increasing to 20 percent of sales units permitted as condominiums during 2018.

[Assistant] New Construction Located in The Loop neighborhood in downtown Chicago, The Vista Tower is 101 stories tall and includes 396 condominium units, more than one-half of which have been sold. Pricing is variable; among sold units, prices range from to $18.5 million, and condominium units range from one to three bedrooms. The project also includes a luxury, 196-room hotel and is expected to be completed in the spring of 2020. In Joliet, Will County, Illinois, Silver Leaf is a new-construction neighborhood of single-family homes with three or four bedrooms and two or three bathrooms priced from through . The 265 home sites are approximately two-thirds built and sold. Forecast During the 3-year forecast period, demand is estimated for 3,200 new single- family homes, townhomes, and condominiums in the submarket (Table 9). The 2,250 homes under construction will generally satisfy demand during the first 2 years of the forecast period.


[User] Sales Permitting Activity in the Central Counties Submarket Notes: Includes single-family homes, townhomes, and condominiums. Data for 2019 are through March 2019. Sources: U.S. Census Bureau, Building Permits Survey; 2000 through 2017—final data and estimates by the analyst; 2018 and 2019—preliminary data and estimates by the analyst Sales Units Demand 3,200 Units Under Construction 2,250 Units Table 9.

[Assistant] Demand for New Sales Units in the Central Counties Submarket During the Forecast Period Note: The forecast period is from April 1, 2019, to April 1, 2022. Source: Estimates by the analyst


[User] The current vacancy rate is estimated at 1.2 percent, down from 2.6 percent in April 2010 ( Metrostudy, A Hanley Wood Company, with adjustments by the analyst Although new home sales have recovered somewhat, they remain below pre-recession highs; during the 12 months ending March new home sales were recorded, more than 13 percent fewer than the 1,025 new home sales recorded a year earlier. By contrast, regular resale home sales have neared their pre-recession levels, although the pace of regular resale sales has recently slowed. From a recent high level of 9,975 regular resale sales during 2006 to a recent low of 3,450 sales during 2009, the decline averaged nearly 30 percent annually. Regular resale sales remained low, averaging 3,500 sales annually during and 2011, before beginning to increase from 2011 averaging 18 percent annually, to 9,525 sales during 2017. Closings of REO home sales totaled 710 during the 12 months ending March 2019, equal to 7.2 percent of all existing home sales. The ratio of REO sales to all existing home sales peaked at 40.9 percent during February 2012. Home Sales Prices Prices for all home sales types have not reached pre-recession levels. The average sales price for all home sales in the submarket during the 12 months ending March 2019 was an increase of 3 percent from the average sales price a year earlier. The average new sales price during this time was an increase of 2 percent above the average sales price a year earlier, and for a regular resale home sale, the value was or 3 percent above the value a year earlier. During 2006, before the Great Recession and its effects began to impact the HMA, the average sales prices were and for all sales, new sales, and regular resales, respectively. Current average sales prices are 1 percent below the 2006 values for all home sales; for new and regular resale home sales, the annual declines were 0.4- and 0.8-percent, respectively. The reason for the larger total sales price decline since 2006 is because REO sales prices, which averaged during the current annual period and are nearly unchanged from the value during 2006, presently account for more than 7 percent of all home sales in the submarket, while during 2006, the similar proportion was 4 percent of all home sales. Since these low levels, annual price gains have averaged 2 and 4 percent annual appreciation for new sales and all home sales, respectively, and averaged 2 percent annual appreciation for regular resale home sales, from their recent low levels during 2012 and 2013 to their 2018 average. 12-Month Average Sales Price by Type of Sale in the Western Counties Submarket REO = real estate owned. Source: Metrostudy, A Hanley Wood Company, with adjustments by the analyst REO Properties and Delinquent Mortgages In March 2019, 1.5 percent of loans in the submarket were seriously delinquent or had transitioned into REO status, down from 1.8 percent during March 2018 and a peak of 10.6 percent during January 2012 (CoreLogic, Inc.). The rate in this suburban market is below the rate of seriously delinquent loans for the In this submarket, with a homeownership rate higher than in the Central Counties submarket, owners likely had a higher equity stake in their homes before the Great Recession and its impacts on the owner market and were in a better financial position to survive the economic downturn. Having a higher equity stake also makes it less advantageous to return a principal residence to the lender as an REO property or to allow a lender to foreclose on the property. Sales Construction Activity Sales construction activity in the Western Counties submarket since 2006 has been significantly below pre-recession levels. This has helped the sales housing market in the submarket reach current balanced conditions from soft conditions during 2010. The recovery in permitting is ongoing, and from 2012 through 2013, permitting rose 49 percent annually, to 1,125 units permitted during 2013. Since 2013, the average annual permitting total has been steady, averaging 1,200 units. During the 12 months ending March 2019, sales building permits totaled 1,075 units, slightly below the 1,125 homes permitted a year earlier (preliminary data with adjustments by the analyst). Approximately 6 percent of the sales units permitted during the past 12 months are condominium units, higher than the 4-percent ratio a year earlier. From 2000 through 2012, approximately 11 percent of sales units built in the submarket were condominium units; since 2012, this ratio has fallen to approximately 4 percent. New Construction The Conservancy, in Gilberts, Kane County, Illinois, includes 51 home sites in the first phase, with approximately 148 additional home sites reserved for future phases. Home models include three different single-family plans, with three or four bedrooms and two bathrooms; prices for the three models of homes start at and . Marketing has just begun at this project. In Elgin, Kane County, Illinois, West Point Gardens South includes 39 sites, with 7 available in the current phase. Five different home plans are available with three to five bedrooms and two bathrooms and starting prices ranging from to . Sales Permitting Activity in the Western Counties Submarket Notes: Includes single-family homes, townhomes, and condominiums. Data for 2019 are through March 2019. Sources: U.S. Census Bureau, Building Permits Survey; 2000 through 2017—final data and estimates by the analyst; 2018 and 2019—preliminary data and estimates by the analyst

[Assistant] Demand for New Sales Units in the Western Counties Submarket During the Forecast Period Note: The forecast period is from April 1, 2019, to April 1, 2022. Source: Estimates by the analyst Forecast During the 3-year forecast period, demand is estimated for 1,975 new single- family homes, townhomes, and condominiums in the submarket (Table 11). The 200 sales units currently under construction will satisfy some of this demand.


[User] The current vacancy rate is estimated at 1.5 percent, down from 2.3 percent in April 2010 ( Metrostudy, A Hanley Wood Company, with adjustments by the analyst From 16,800 sales during 2006, regular resales also fell, to 5,425 during 2011, declines averaging 20 percent annually. Since 2011, regular resales rose to 13,600 sales during 2017, increases averaging 20 percent annually. REO home sales totaled 1,025 during the 12 months ending March 2019, equal to 8 percent of all existing home sales. The ratio of REO sales to all existing home sales peaked at 36 percent during March 2012. Home Sales Prices Home sales prices for all home sales have not reached pre-recession levels because regular resale prices remain comparatively low. Declining demographic trends in the submarket, including increased net out-migration, have contributed to lower demand, fewer sales, and lower average sales prices. The average sales price for all home sales in the submarket during the 12 months ending March 2019 was nearly 4 percent below the average sales price a year earlier. The average new sales price during this time was more than 1 percent higher than a year earlier, and for a regular resale home sale, the value was nearly 5 percent below the value a year earlier. During 2006, before the Great Recession and its effects began to impact the HMA, the average sales prices were and for all sales, new sales, and regular resales, respectively. Only current new sales prices are above their 2006 value, nearly 15-percent higher. Regular resales and overall sales prices are 15 and 16 percent below their 2006 values, respectively. For regular resales, the 2018 average sales price of is the lowest recent price recorded. REO Properties and Delinquent Mortgages In March 2019, 1.6 percent of home loans in the submarket were seriously delinquent or had transitioned into REO status, down from 1.9 percent during March 2018 and a peak of 9.0 percent during January 2012 (CoreLogic, Inc.). As in the Western Counties submarket, the rate in this suburban market is below the rate of seriously delinquent loans for the overall HMA and for Illinois and is currently equal to the national rate of 1.6 percent. In this submarket, with a homeownership rate higher than in the other two submarkets, owners likely had a higher equity stake in their homes before the Great Recession and were in a better financial position during the economic downturn. 12-Month Average Sales Price by Type of Sale in the Northern Counties Submarket REO = real estate owned. Source: Metrostudy, A Hanley Wood Company, with adjustments by the analyst Sales Construction Activity Sales construction activity in the Northern Counties submarket since 2007 has been significantly below pre-recession levels. This has helped the sales housing market in the submarket reach current slightly soft conditions, from soft conditions during 2010. Sales units permitted fell to 2,625 during 2007, a decline of 40 percent from 2006. Construction has remained comparatively low since then, averaging 750 units permitted annually from 2008 through 2012, and averaging 810 units permitted annually from 2012 through 2017. During the 12 months ending March 2019, there were 790 sales units permitted, 13 percent fewer than were permitted a year earlier (preliminary data with adjustments by the analyst). Fewer than 1 percent of the units permitted during the past 12 months are condominium units, below the 3-percent ratio a year earlier. From 2000 through 2013, condominium units as a percent of all sales units permitted ranged from 4 percent during 2012, to 34 percent during 2006. New Construction In Kenosha, Wisconsin, Parkview Heights is a new neighborhood with 38 single- family home lots, available for custom or semi-custom-built homes. Currently, lots are sold; available home models range in price from to and range in size from 1,560 to 2,857 square feet and include three or four bedrooms and two or three bathrooms. In Volo, Lake County, Illinois, Andare at Remington Pointe North is an active-adult community which will include 86 new ranch homes, ranging from 1,224 to 2,171 square feet, and priced from to .

[Assistant] Forecast During the 3-year forecast period, demand is estimated for 1,000 new single- family homes, townhomes, and condominiums in the submarket (Table 13). The 150 sales units currently under construction will satisfy some of this demand.


[User] Sales Permitting Activity in the Northern Counties Submarket Notes: Includes single-family homes, townhomes, and condominiums. Data for 2019 are through March 2019. Sources: U.S. Census Bureau, Building Permits Survey; 2000 through 2017—final data and estimates by the analyst; 2018 and 2019—preliminary data and estimates by the analyst Sales Units Demand 1,000 Units Under Construction 150 Units Table 13.

[Assistant] Demand for New Sales Units in the Northern Counties Submarket During the Forecast Period Note: The forecast period is from April 1, 2019, to April 1, 2022. Source: Estimates by the analyst


[User] Current Conditions and Recent Trends The rental housing market, including apartment units and single-family homes for rent, in the HMA is currently balanced. Conditions have been mostly balanced since 2012, because of the economic recovery in the HMA, improved demographic trends early in the decade, the foreclosure crisis which made homebuying more difficult, and a propensity to rent among new households. In 2017, an estimated 52 percent of all rental units were in larger structures with five or more units per structure; 19 percent of all rental units were in single- family homes, attached or detached. Since 2010, the number of rental units in single-family homes rose, likely because of the foreclosure crisis shifting homes from owner to renter-occupied; at the same time, the percent of renters in larger structures with five or more units per structure also rose slightly. The overall rental vacancy rate is 6.6 percent, down from 9.3 percent in 2010 ( The current date is April 1, 2019. Sources: 2010 and 2017 American Community Survey, 1-year data Apartment Rents and Vacancy Rates in the Greater Chicago HMA Q1 = first quarter. Note: Four-quarter running average. Source: RealPage, Inc. The HUD Rental Affordability Index, a measure of median renter household income relative to qualifying income for the median-priced rental unit, declined from 2008 to 2011 because renter household incomes declined while gross rents rose, albeit slowly. Since 2011, however, median renter household incomes have risen nearly twice as fast as rents and the index has, in turn, also risen. There are approximately 20,200 new units under construction which will satisfy all expected demand during the next 3 years. Accordingly, no additional large-scale apartment development is recommended to start construction during the forecast. Chicago MSA Rental Affordability MSA = metropolitan statistical area. Notes: Rental affordability data is for the larger Chicago-Naperville-Elgin, IL-IN-WI MSA, which includes 14 counties, and is larger than the HMA definition used in this report. Source: American Community Survey, 1-year data Note: The forecast period is April 1, 2019, to April 1, 2022. Source: Estimates by the analyst The current date is April 1, 2019. Sources: 2010 and 2017 American Community Survey, 1-year data Conditions in the apartment market are also balanced, unchanged from conditions in 2010. The apartment vacancy rate has ranged from 4.3 to During the first quarter of 2019, apartment vacancy rates ranged from 3.9 percent in the RealPage, Inc.-defined Central Cook County market area to 8.0 percent in the Naperville market area (DuPage County). During the first quarter of 2019, the average apartment rent in the submarket was $1,629, more than 7 percent higher than the average rent during the first quarter of 2018. Rent was highest in the Streeterville/River North market area at $2,438, and the fastest annual rate of growth was 8.1 percent, to $1,177 in the Will County market area. Units permitted dropped sharply, to 770, during 2009, which was the worst year for job losses in the HMA, before rebounding to 2,000 units permitted during 2010. From 2011 through 2014, rental units permitted averaged 5,300 annually, higher than the level of permitting before the Great Recession, but then surged upward, averaging 10,300 annually from 2015 through 2017. Despite this increase in rental production, the apartment and rental vacancy rates remained mostly stable and the markets remained in balance. Many of these newly permitted units were concentrated in the downtown Chicago neighborhood of The Loop and nearby areas, which have gained population rapidly, in contrast to the rest of the city of Chicago, Cook County, the submarket, and the HMA. During the 12 months ending March 2019, approximately 8,925 rental units were permitted, down 16 percent from 10,650 units permitted a year earlier (preliminary data with adjustments by the analyst). Rental Permitting Activity in the Central Counties Submarket Notes: Includes apartments and units designed for rental occupancy. Data for 2019 are through March 2019. Sources: U.S. Census Bureau, Building Permits Survey; 2000 through 2017—final data and estimates by the analyst; 2018 and 2019—preliminary data and estimates by the analyst Rental Construction Activity Rental construction activity, as measured by the number of rental units permitted, has been strong in the submarket since economic conditions began improving in 2010.

[Assistant] Forecast During the 3-year forecast period, demand is estimated for 15,800 new rental units (Table 17). The 17,200 units currently under construction will satisfy demand during the next 3 years.


[User] Rental Market—Western Counties Submarket Market Conditions: Balanced Current Conditions and Recent Trends The rental housing market in the Western Counties submarket is currently balanced. In 2017, approximately 62 percent of all rental units were in structures with four or fewer units, up from 52 percent in 2010 (ACS 1-year data). This shift in tenure among single-family homes (detached and attached) and two- to four- unit structures is likely a result from the Great Recession and its impact on REO and foreclosed properties, as former homeowners shifted to rental status. The overall rental vacancy rate is estimated at 5.8 percent, down from 8.3 percent in 2010 (Table 18).

[Assistant] Rental market conditions were soft in 2010 but tightened as economic conditions within the HMA improved and because of stronger demographic trends that are still identified today; this is the only submarket that is currently recording population growth and expected to grow during the next 3 years. In addition, there has been a shift to renter occupancy among existing households in the submarket and among new arrivals to the area. Note: The forecast period is April 1, 2019, to April 1, 2022. Source: Estimates by the analyst Rental Units Demand 15,800 Units Under Construction 17,200 Units The current date is April 1, 2019. Sources: 2010 and 2017 American Community Survey, 1-year data The apartment vacancy rate has ranged from 4.3 to 5.3 percent each quarter since 2010. During the first quarter of 2019, apartment vacancy rates ranged from 4.4 percent in the RealPage, Inc.-defined Far Northwest Chicago Suburbs market area to 5.2 percent in the Aurora market area (Kane County). During the first quarter of 2019, the average apartment rent in the submarket was $1,191, more than 3 percent higher than the average rent during the first quarter of 2018. Rent was highest in the Aurora market area at $1,328, which also increased 5 percent from a year earlier. Rental Construction Activity Rental construction activity, as measured by the number of rental units permitted, is highly variable in this submarket. Before the Great Recession, rental permitting declined steadily, from 880 units in 2000 to 110 units in 2004, declines averaging 41 percent annually. Following the end of the Great Recession and recovery in the submarket, rental permitting picked up modestly, averaging 120 units permitted annually from 2010 through 2016, including 1 year, 2013, with no rental units permitted. Apartment production increased to higher levels during 2017 and 2018, and units permitted averaged annually 1,050 during these 2 years. Significant new apartment construction during these years was in Saint Charles and South Elgin, both in Kane County. During the 12 months ending March 2019, approximately 880 rental units were permitted, down 12 percent from 990 units permitted a year earlier (preliminary data with adjustments by the analyst). Rental Permitting Activity in the Western Counties Submarket Notes: Includes apartments and units designed for rental occupancy. Data for 2019 are through March 2019. Sources: U.S. Census Bureau, Building Permits Survey; 2000 through 2017—final data and estimates by the analyst; 2018 and 2019—preliminary data and estimates by the analyst Q1 = first quarter. Note: Four-quarter running average. Source: RealPage, Inc. Forecast During the 3-year forecast period, demand is estimated for 1,300 new rental units (Table 19). The 1,500 units currently under construction will satisfy demand during the next 3 years. As in the Central Counties submarket, demand for new market-rate rental units during the next 3 years will be met by the current development pipeline.


[User] Note: The forecast period is April 1, 2019, to April 1, 2022. Source: Estimates by the analyst Rental Units Demand 1,300 Units Under Construction 1,500 Units The current date is April 1, 2019. Sources: 2010 and 2017 American Community Survey, 1-year data The apartment vacancy rate has ranged from 2.5 to 4.9 percent each quarter since 2010. The average rent during the first quarter of 2019 was $1,151, approximately 2 percent above the average rent a year earlier. Apartment Rents and Vacancy Rates in the Northern Counties Submarket Rental Construction Activity Rental construction activity, as measured by the number of rental units permitted, is also quite variable in this submarket. Before the Great Recession, rental permitting was mostly steady, averaging 480 units permitted annually from 2000 through 2006; during 2001 and 2002, rental permitting was significantly lower, totaling 250 and 30 units, respectively. Eliminating these 2 years, the average increases to 620 units annually. During 2010 and 2011, rental permitting rose to 390 and 490 units, increases of 120 percent and 28 percent, respectively. Permitting then declined to 160 units during 2012 and again to 100 units during 2013 before increasing to an average of 690 units annually from 2014 through 2016. A recent high level of 1,000 units was permitted during 2017. During the 12 months ending March 2019, approximately 620 rental units were permitted, down 21 percent from 780 units permitted a year earlier (preliminary data with adjustments by the analyst). Rental Permitting Activity in the Northern Counties Submarket Notes: Includes apartments and units designed for rental occupancy. Data for 2019 are through March 2019. Sources: U.S. Census Bureau, Building Permits Survey; 2000 through 2017—final data and estimates by the analyst; 2018 and 2019—preliminary data and estimates by the analyst New Construction Breeze Terrace Apartments is currently under construction in Pleasant Prairie, Kenosha County, Wisconsin and is scheduled to be completed in the summer of 2019. It will include 213 one- and two-bedroom units with rents starting at $1,395 and $1,900, respectively. Somerset by the Lake apartments, in Lake Zurich, Lake County, Illinois, is a 48-unit apartment property, scheduled for completion in July 2019. One- and two-bedroom units are offered starting at Q1 = first quarter. Note: Four-quarter running average. Source: RealPage, Inc.

[Assistant] Forecast During the 3-year forecast period, demand is estimated for 950 new rental units ( The forecast period is April 1, 2019, to April 1, 2022. Source: Estimates by the analyst Rental Units Demand 950 Units Under Construction 1,500 Units Table 21. Demand for New Rental Units in the Northern Counties Submarket During the Forecast Period


[User] — After a strong and sustained surge in multifamily completions over the past two years, vacancy will edge down in 2025 due to robust tenant demand. Economic growth will support household formation but the still-high cost of home ownership will drive demand for apartments.

[Assistant] State of the Real Estate Cycle Commercial real estate fundamentals are in relatively good shape as we enter 2025, with even the distressed office sector benefiting from improved leasing activity. Our industry has suffered profound shocks over the past four years from the pandemic, high inflation, rising interest rates and a surge in construction completions. That real estate has weathered these formidable challenges is testimony to the asset class’s resilience and its role as the bedrock of business operations. While we expect that economic growth in 2025 will ignite a new real estate cycle, we know that potential risks loom. We look forward to helping our clients identify opportunities and navigate change to meet and exceed their goals in 2025. Although the refinancing of commercial real estate remains a work in progress, the U.S. banking sector has made itself more resilient, greatly reducing the likelihood of a financially led recession from a major bank failure.


[User] A Soft Landing Amid a Changing World The U.S. enters 2025 with positive momentum in terms of economic growth and easing inflation. Consumers—the bedrock of the U.S. economy—remain in good shape with robust gains in wealth and income. The S&P 500 rose by 22.5% in 2024, house prices by 6.8%1 and real disposable income by 3.1%.2 This in turn should drive consumer spending growth of between 2% and 4% in 2025. Despite the recent slowdown in job growth, strong corporate earnings and falling interest rates should rekindle hiring in 2025. Households and businesses both remain sheltered from the full effects of high interest rates by the low fixed- interest mortgage and corporate debt that was taken out in the pandemic era. Although the outlook for government spending is uncertain at the time of this writing due to the re-election of Donald Trump as president, there still is a considerable level of support for the economy as we start the year. The avoidance of tax increases next year is a positive for consumption and investment. The Infrastructure & Jobs Act of 2021 will boost construction activity in 2025 and increased defense spending will support U.S. manufacturing. The prospect of lighter government regulations in certain sectors is also a plus for the economy. Positive momentum will help the economy adjust to higher import prices from tariffs, but reduced labor supply could prompt the Fed to slow the pace of interest rate cuts to prevent a flare up of inflation.

[Assistant] Although the refinancing of commercial real estate remains a work in progress, the U.S. banking sector has made itself more resilient, greatly reducing the likelihood of a financially led recession from a major bank failure. The relatively low consumer loan delinquency rate and reductions in the federal funds rate should support economic growth in 2025.


[User] Global Risks The U.S. economy has avoided recession and pulled off a remarkable soft landing. Nevertheless, there are global risks to the outlook, the biggest of which is a recession in China. China accounts for 18% of world GDP—second only to the U.S. with 25%—and its demand for raw materials drives growth in many emerging markets. China’s housing market has collapsed, mainly due to oversupply, and its consumer spending is very weak. Although the Chinese government has announced significant stimulus, it may not be enough. A second global risk comes from Germany, which faces a big challenge from weak demand for manufactured exports. However, falling inflation and low unemployment will be enough to generate a consumer recovery in Germany next year. A longer-term risk to the U.S. economy is the federal budget deficit. This is not an immediate problem, since the overall debt-to-GDP ratio is rising slowly. President-elect Trump has proposed levying tariffs on foreign goods to reduce the deficit, offsetting some effects of the tax cut extension. However, the lack of a clear strategy to reduce the deficit likely means higher interest rates and mortgage rates for longer.

[Assistant] With the economy in relatively good shape, we should soon see the start of a new real estate cycle driven by tenant demand and falling vacancy rates. The Economy & Real Estate For the past 40 years, the real estate and economic cycles have been highly correlated. In the past three years, the end of the real estate cycle has not been accompanied by an economic recession. Moreover, the U.S. economy appears resoundingly at mid-cycle, with low levels of corporate and consumer debt. With the economy in relatively good shape, we should soon see the start of a new real estate cycle driven by tenant demand and falling vacancy rates.


[User] Unemployment vs. Average Vacancy Rate Sectors Included: Office, Industrial, Retail, and Multifamily Source: CBRE Econometric Advisors, CBRE Research, Q3 2024.

[Assistant] Mega in Economy Artificial intelligence technology will be more widely deployed in 2025. Look for major advancements in medicine, a stronger revival of tech leasing as the nature of office work continues to evolve and a continued boom in data centers. Nuclear power will start to make a comeback.


[User] Forecast Slow But Sure Investment Recovery CBRE expects a continued recovery for investment sales in 2025; however, investors and lenders will face several headwinds. The 10-year Treasury yield will remain above 4% as markets react to a persistently large budget deficit, stimulative fiscal policy and the potential for higher inflation. Nevertheless, strong economic growth driving positive fundamentals will support the recovery in investment activity, with volume up by as much as 10% next year.

[Assistant] Investors will focus on industrial and multifamily assets. Office properties will remain challenged, with investors still very discerning. Assuming minimal disruptions from tariffs, retail will continue to attract investors with its strong fundamentals and we expect some portfolio sales will ensure a robust year for this property type. Election Impact The second Trump presidency presents both opportunities and risks for commercial real estate. The industrial and retail sectors will be particularly affected by trade policy and shifting consumer spending patterns. Fiscal policy will also have some bearing on the cost of capital. Prospects for historically high budget deficits could keep long-term interest rates relatively high, weighing on the budding recovery in investment activity. On the other hand, higher interest rates will bolster multifamily fundamentals as homeownership affordability challenges support rental demand. Investors will also have greater certainty around capital gains and other tax policy, which we expect will remain favorable for the industry and investors. Cap Rates Cap rates will slightly compress in 2025. While Treasury yields and rents are the biggest drivers of cap rates, other significant factors include the risk premium and GDP growth. CBRE forecasts that cap rates will slowly fall and stabilize at higher levels than in the last cycle due to interest rates remaining higher than they were during the 2010s. This is driven by outsized budget deficits and continued economic growth, among other factors. From their peak in 2024 to the end of 2025, industrial cap rates will fall by 30 basis points (bps), retail by 24 bps, multifamily by 17 bps and office by 7 bps. This forecast is subject to changes in borrowing rates, which will impact activity and pricing. Investors should consider broader macroeconomic drivers that influence Fed policy to understand cap rate movements. Although macro factors determine the direction of cap rates, the extent of those changes can be influenced by the relative strength of each market and asset. As such, market and individual asset selection will be even more important considerations for investors during the current cycle's early phase.


[User] Risks & Opportunities 02 Capital Markets Risks Geopolitical risks, potential fiscal or monetary policy errors and persistent inflation—potentially exacerbated by trade and immigration policy changes—could impact the nascent capital markets recovery.

[Assistant] Continued distress in the office sector and, to a lesser extent, the multifamily sector is likely. As a result, banks—particularly community and regional banks—will manage their exposure to commercial real estate amid continued regulatory scrutiny. Construction loans will remain relatively difficult to obtain from banks. There also is uncertainty around the reproposed Basel III rules that could compound issues for banks that lend to commercial real estate, impacting liquidity in the sector. However, following the election, we anticipate any implementation to be less disruptive than previously feared. Evolving supply chains and a relatively healthy consumer will continue to present opportunities in the industrial sector, particularly as trade policy impacts the flow of goods entering and leaving the country. For the multifamily sector, reduced levels of new supply and higher mortgage rates will result in healthy demand and better fundamentals. And investment opportunities will abound in the retail sector amid continued consumer strength and low levels of new supply, although the imposition of tariffs might weaken investor sentiment. We also expect more interest in alternatives, especially data centers. 02 Capital Markets — Pricing will rise for all property types, even office. — Major policy changes, including tax, trade, immigration and federal spending, will have varying impacts on commercial real estate and the overall investment environment. Office Market Stabilization Expected The U.S. office market is set for a pivotal shift in 2025, with stabilization paving the way for a new cycle. With office attendance reaching a steady state and a soft landing for the economy, occupiers can conduct portfolio planning with increased confidence.


[User] Occupier sentiment will shift from a contraction-oriented approach to one of stabilization and even expansion, supporting office space absorption. This positive shift, along with a significant slowdown in new supply and declining interest rates, sets the stage for the most optimistic outlook in years. However, certain challenges will remain, including subpar office-using job growth, a substantial amount of sublease space and high vacancies in less desirable office properties.

[Assistant] Occupier Strategy More than one-third of respondents to CBRE’s 2024 Occupier Sentiment Survey plan to increase their portfolio requirements over the next two years, while 25% expect no change. This will support positive office absorption in 2025. Large companies with more than 10,000 employees will drive most of the downsizing, while small companies with less than 1,000 employees will drive most of the expansion. Although rightsizing will continue in 2025 due to pre-pandemic inefficiencies and space reductions from hybrid working, much of this adjustment has already taken place over the past four years. A healthy pipeline of tenants actively seeking office space is a precursor to a 5% rise in leasing volume in 2025. Smaller tenants looking for between 10,000 and 20,000 sq. ft. will account for more than half of total leasing volume. Manhattan, which was one of the worst-hit markets by the pandemic, will continue to rebound next year. The market’s active tenant pipeline is above its pre-pandemic average, indicating increased leasing volume ahead. Other markets with high demand that can be satisfied by new prime office deliveries include Austin, Nashville and Miami.