Survey: Real estate industry remains negative on outlook

San Francisco A survey released Thursday by the Urban Land Institute found that commercial real estate investors and professionals remain decidedly negative, colored by distress over prospects for an extended period of anemic demand and costly de-leveraging.

Respondents of the Emerging Trends in Real Estate 2010 report, by PricewaterhouseCoopers LLP and the ULI, predicted that commercial real estate vacancies will continue to increase and rents will decrease across all property sectors before the market hits bottom in 2010 and projected value declines of 40% to 50% off 2007 market peaks.

Survey participants also said they believe that 2010 and 2011 will present generational opportunities for investors to buy at or near cyclical lows.

“Our report participants find that a sense of nervous euphoria is growing among liquid investors who can make all-cash purchases,” said ULI senior resident fellow for real estate finance Stephen Blank. “Those that are patient, daring and selective could score generational bargains on premium properties from both distressed sellers and banks that are clearing out unwanted bad loan and real estate owned portfolios. However, once the property market recovery begins and gains traction -- likely before 2012 -- any rebound could be restrained by a lackluster economy and rising interest rates.”

The survey data also indicated that investors believe that capital will slowly begin to flow back into commercial real estate markets by the end of 2010, led by all cash investors seeking quality assets.

The debt markets will start to rebound too, according to survey results.

Survey participants believe that the markets performing well before the crash should perform better coming out of it and the laggard markets will continue to suffer. The report found that investors will continue to favor global gateway markets on the East and West Coasts. Cities and urbanizing infill suburbs with 24-hour attributes, brainpower centers that offer universities and high-paying industries, as well as ‘barrier to entry’ markets where geographic constraints limit development and help control overbuilding will be top market performers.

According to the survey, Washington, D.C., ranks No. 1 as the “recession-proof” city. Value declines have been less than other markets as employment is buffered by the federal government. Long-term confidence holds for New York and Boston despite financial industry downsizing. West Coast gateways -- San Francisco, Seattle and Los Angeles -- have all suffered ratings declines, but remain among the survey’s Top 10 major markets.

Texas markets continue to show strength after years languishing in the survey basement.