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San Diego ranks as top real estate investment market!
Yahoo News Alert...
Although a continuous flow of capital has kept the real estate industry stable overall, growth over the next year is likely to be more moderate compared to the robust levels of recent months, according to Emerging Trends in Real Estate 2006, just released by the Urban Land Institute (ULI) and PricewaterhouseCoopers LLP.
The market's direction depends on what happens with a variety of factors such as consumer spending, energy prices, housing demand, job growth, corporate productivity gains and inflation, the report said.
"Despite improving market fundamentals and continuing capital infatuation with real estate, Emerging Trends interviewees signal caution over a looming transition to a period of more measured, possibly lackluster, performance," the report says.
However, it emphasizes that the lower expectations voiced by the participants "do not translate into anything dire," and the consensus forecast suggests that real estate will hold a value edge over stocks and bonds, at least in the near future. Emerging Trends is one of the industry's longest-running and most-respected annual investment studies, and is based on surveys and interviews with more than 400 of the industry's leading authorities. The report is being distributed this week during ULI's annual fall meeting, held this year in Los Angeles.
In its "markets to watch" category, San Diego -- for the first time in the report's history -- ranks as the top investment market, edging out Washington, D.C., which dropped to second place. Greater Los Angeles ranked third, boosted by the boom in Orange County. "Southern California parlays extraordinary climate, geographic barriers, deepwater Pacific ports, and an extremely diversified economy. Dynamic demand and constricted supply translate into the nation's best place to invest," the report says.
Both Washington and perennial favorite New York City are becoming "ever more strategic as America's primary global gateways. Corporations and world elites 'need to be there' and investor hoards follow," the report explains. Other highly rated investment markets: Phoenix, Las Vegas, Seattle, Portland (Ore.), Boise and Salt Lake City. In the doldrums: Atlanta, Houston, Dallas, Denver, Charlotte, N.C., and most Midwestern markets. "It looks like two worlds -- strong performing markets along both coasts and mostly stagnant markets in between," says one interviewee.
Survey respondents expressed cautious optimism over the economy, with descriptions such as "pretty good," and "moving at three-quarters speed." The report says, "Though hopeful, interviewees remain stumped trying to identify new growth engines to replace dwindling manufacturing industries and pump life back into high tech. Others are encouraged by the economy's moderate expansion across a wider range of sectors, resulting in growth that could be more stable and sustainable." If you take away all the jobs generated by the recent housing boom, the nation's employment growth would look more modest. Even so, "recent employment gains have been enough to spur increasing apartment rentals -- room-mating declines and young adults move out of their parents' homes as they find more work," notes the survey.
Emerging Trends points out that solid corporate earnings translated into only moderate hiring in office jobs. The continued focus on cost cutting, managing space costs and productivity increases -- technological advances enabling more employees to work anywhere -- will dampen demand for office space, it predicts. "(Office) building owners face the music -- demand growth for office space will likely not rise aggressively as it did in the 1990s."
The report also cites an increasing inflation threat, as Hurricanes Katrina and Rita push up costs for both construction materials and energy. "Expect the storms' impact to be decidedly mixed. The nation's reduced refining capacity threatens to sustain record or near-record gasoline and home heating prices just as government economic stimuli -- low interest rates and tax cuts -- have lost some of their effect ... Building materials can only become more expensive as the massive clean-up and reconstruction gear up, opportunely restraining development passions in slowly firming commercial markets. In most of the country, home builders may be forced to slow down too."
Higher gas and oil prices could ultimately affect growth patterns in the suburbs, it notes. "An extended period of higher energy prices could curtail fringe suburban growth and dampen demand for big houses with outsized heating/cooling bills ... Greenfield developers beware."
Now in its 27th year, Emerging Trends examines the outlook for real estate capital markets and contains a comprehensive annual forecast for all categories of the commercial real estate industry, including apartments, regional malls, downtown offices, warehouses, community shopping centers, suburban offices, research and development space, power centers, full-service hotels and limited-service hotels. Since last year, the report also has started tracking trends in the housing industry.
Among the current investment patterns noted by respondents: a steady supply of buyers paying premium prices without seeming regard to the possibility of a market slowdown; a tendency by owners of well-leased, income- generating core portfolios to hang on to their properties; a decline in the availability of "value-add bargains," (fixer-uppers); and increasing interest in investment in Asia.
Among the current development patterns: a steady demand for urban infill projects, due to continuous downtown migration by empty nesters and young professionals; and growing interest in age-restricted and unique resort development, catering to affluent active baby boomers.
Investment tips include "hold full-service hotels; sell or hold apartments; hold warehouses; sell commodity office; and sell retail."
Emerging Trends respondents believe that during the next real estate cycle (looking to 2010 and beyond), property markets will become more global and more public, and U.S. real estate markets will sustain interest from myriad capital sources. They also predict that in the years ahead, concerns over sprawl, traffic congestion and the likelihood of higher energy prices will accentuate the desirability of both suburban town centers and more convenient urban living environments.
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On the other hand, CA and Vegas appear to be predicted to do just fine! 
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