Don't go looking for happy news in the Urban Land Institute (ULI)/PricewaterhouseCoopers annual Emerging Trends in Real Estate report for 2009. There really isn't any to be had.
Jonathan D. Miller, a ULI consultant and lead author of the report, and Stephen Blank, a ULI researcher, spent an hour-long conference call Tuesday saying things like:
"It's hard to remember when the economy has faced so many negative issues at once."
"There is no escaping this minefield."
"2009 will probably be the worst year since the 1991-1992 depression."
And: "Tough times have come, and people should probably be content to just have a job."
It seems the best thing about 2009 for those connected with real estate, unless you happen to be a distressed asset investor with cash to spend, will be its eventual end.
Perhaps the authors of the 30th annual report, derived from surveys and interviews with more than 700 industry experts, wanted to make up for last year's report, which predicted the market would begin correcting this year and told buyers to invest in residential lots because prices would hit bottom.
"We were probably pretty premature," they said.
However, this year's report suggests once again that residential building lots should hit bottom in 2009 and that the real estate market should begin a "lurching and slow" recovery at the end of the year.
However, commercial real estate, which the study's authors spent most of the time talking about during the conference call, still has some hits to take before it reaches bottom because it lags behind the rest of the real estate market.
There will be a sign that things will get better soon--REIT stock portfolios are likely to lead a rebound.
But the market that returns will be substantially more sober than roaring boom years. Real estate investors will have to get used to high-single-digit returns again as hedge funds and some foreign investors retreat.
The types of markets that emerge from the downturn will be different too, the report says.
There will be a move away from far-flung suburbs and toward mixed use and infill projects in "24-hour cities," not just because of gas prices but because people are tired of fighting traffic congestion and are seeking convenience.
The report suggests that "global pathway markets," cities that have direct access to the rest of the world, will be areas of greater return on investment. Seattle and San Francisco, boosted also by their technology-based economies, scored highest for being good investment locations. They were followed by Washington, D.C., New York, and Los Angeles. Houston made it to the top 10 list for the first time because the high cost of oil has enriched its local economy. That could change, however, should oil costs fall.
Smaller markets with little diversification of industry, will suffer greatest in the downturn because they are more vulnerable to corporate downsizings, and they will be less accessible for business travel as airlines cut routes.
Investments in retail projects and hotels are likely to suffer as people cut back on travel and spending. Of commercial projects, apartments are likely to do better as those cut off from access to homeownership will need to move somewhere. Despite that, apartment demand is likely to be dampened as some young adults choose to stay with their parents longer and others choose to share rentals.
There was less discussion about the fate of residential builders.
"When will home builders be developing again?" said Miller, repeating a question from a caller. "I don't think for a while."
"If you were starting a brand new development, I can't imagine you would want to start anything [in 2009]," chimed in Blank. "What banker is giving a home builder money to build these days?"