Real estate industry able to weather slowdown

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Despite some pockets of sluggishness, the real estate industry overall is well equipped to weather any slowdown in the economy, according to economists speaking during the Urban Land Institute's annual fall meeting in Chicago. Nearly 5,000 ULI members and guests attended the meeting, according to a ULI release.|ret||ret||tab|

The outlook for real estate was discussed by Kenneth T. Rosen, chairman of the Fisher Center for Real Estate and Urban Economics, Haas School of Business, Berkeley, Calif.; and Peter D. Linneman, Albert Sussman professor of real estate, University of Pennsylvania, Philadelphia. |ret||ret||tab|

Both economists agreed that while the economy in general appears to be slowing, most sectors of the real estate industry will remain healthy.|ret||ret||tab|

"Real estate is the best performer of the economy today some areas are still in a growth cycle, and most sectors are solid," Rosen said. Conservative lending by banks has kept construction in residential and commercial sectors balanced, and has held off overbuilding, he said. "While we hope for a soft landing for the economy, real estate will be able to sustain even a hard landing. There is no chance of repeating a downward cycle within the next two years," Rosen said.|ret||ret||tab|

Continued strong job growth is fueling office space demand, keeping vacancy rates low and rent prices up, Rosen said. In the multifamily sector, construction has kept pace with demand in most areas and vacancy rates are down. With a large segment of the population turning 18 by 2010, rental demand can be expected to increase, Rosen said. |ret||ret||tab|

The retail sector remains healthy and has been largely unscathed by competition from online shopping; however, there is too much new construction in the retail industry overall, as retailers are over-expanding their space and overestimating consumer spending, he said.|ret||ret||tab|

According to Rosen, most of the healthiest markets, in terms of economic growth, are on the two coasts, with a couple of exceptions: the top 10 cities for employment growth are Los Angeles, Dallas, Atlanta, Washington, Phoenix, San Francisco, Houston, New York, Tampa and Orlando.|ret||ret||tab|

Linneman pointed out that the real gross domestic product has risen steadily about 3 percent a year, with 1 percent of that growth attributable to the population increase in the United States. The addition of more than 1 million private-sector workers a year in the United States has created a "powerful engine" for filling office space, he said. |ret||ret||tab|

Although office construction has risen in response to job growth, it has not "even come close" to outstripping demand in the manner that occurred in the 1980s, Linneman said. In fact, although the economy grew substantially during the past 15 years, there was no need to build at a corresponding level because the space had already been built, he said.|ret||ret||tab|

The strong consumer spending resulting from the high employment rate has driven up consumer debt, which could be detrimental in the event of a hard landing for the economy, Linneman said. People with little equity in their homes and who have purchased large amounts of high-technology stocks are particularly vulnerable, he said.|ret||ret||tab|

Another session at the ULI Fall Meeting featured economic insights from David D. Hale, chief global economist for the Zurich Financial Services Group in Chicago. Hale said the U.S. economy is likely to encounter only a slight decline over the next year. |ret||ret||tab|

The economy has been buoyed by the explosive growth in technology, massive amounts of venture capital, and the ability of the United States to attract large numbers of highly skilled immigrants to join the nation's work force, he said.|ret||ret||tab|

According to Hale, the economy will remain healthy even if venture funds taper off. "The entrepreneurial businesses funded by venture capital have had a positive impact on economic growth," Hale said. "There is no doubt that the flow of venture capital will slow, but even as it reaches a more stable point, it will continue to serve as a large funding source to create new growth opportunities," Hale said.|ret||ret||tab|

During a session entitled "Just in Case: It Could Happen Again," several ULI leaders discussed plans to conduct business operations conservatively. Former ULI President James D. Klingbeil, president and chief executive officer of American Apartment Communities in San Francisco, said "paying down debt and improving the company's balance sheet" is the key to being prepared for an economic downturn. |ret||ret||tab|

When the market slows, "the opportunities are there for people with cash," he said. Acting cautiously and avoiding "high-return schemes" is wise in any economic environment, Klingbeil said.[[In-content Ad]]