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According to the Urban Land Institutes’s Emerging Trends Report it will be A Not So Great 2008, as reported in the National Real Estate Investor.
This report is a poll of 600 real estate experts. 78% thought there would be more stringent underwriting standards ahead (only 78%?) and there will be rising capitalization rates. They still expect the commercial real estate market to outperform the return from stocks and bonds.
The report also targets the top markets to watch:
- New York. Ranked as the hottest commercial real estate market in the country. Low vacancy rates and skyrocketing pricing.
- Seattle. Growth controls and geographic barriers have led to concentrated high-density, mixed-use development, which has drawn residents to new downtown neighborhoods. Seattle has become a 24-hour city on Asian commerce routes. It has a highly diversified economy.
- Washington D.C. The government never stops and provides a cushion for real estate owners against abrupt downturns.
- Los Angeles. High prices have driven some business and residents to seek shelter in lower cost states. The Orange County office market has softened. The office market in West LA has never been better. LA/Long Beach remains the nation’s top port, but transportation routes are clogged, creating a hindrance to trade.
- San Francisco. Technology businesses are thriving and taking up lots of space. View space is once again commanding over $100 per square foot, even as supply creeps upward.
- Boston. As the greater Boston market rebounds from the “tech wreck” of the early 2000s, it is seeing resurgence in its offices. New industries, such as professional services firms and bio-tech companies, are beginning to recycle space left vacant by corporate headquarter departures in the recent past. But questions remain about the depth of Boston’s tenant population, causing investors to keep a close and wary eye on the market.
- San Diego. San Diego is a leading indicator for a market correction. Office turnover and out-migration of prime business centers to Del Mar and Oceanside have left San Diego’s downtown looking for new growth opportunities.
- Denver. The only non-coastal city in the top tier, Denver has retooled its downtown to create an “urban burb,” a hip and exciting urban core in the midst of a sprawling suburban area, connected to downtown via a light-rail transit.
