The U.S. economy is now the ally of the real estate industry, not its enemy.
* Real wages have risen for the first time since 1986, prompting fears of future inflation.
* Real corporate profits are at their highest level in 15 years; earnings at non-durable goods producers are up 9.7% this year and 24.8% from 1992.
* Job gains have spread to 48 of the 50 states, with only California and Hawaii still in decline. The Intermountain states are the biggest gainers.
* Overall, 85% of the nation's largest MSAs are gaining jobs, with the biggest cities doing especially well.
* More than 250,000 well-paying supervisory jobs were created, but our research shows that advances are broadly distributed across the wage spectrum. The highest wage levels, over $30,000 annually, captured a 15% share of the growth in production jobs.
* The twin deficits in trade and budget continue to retard the economy's growth potential.
* Economic cycles are likely to be longer but less dramatic. At least seven good years should lie ahead for real estate.
THE OFFICE MARKET
Offices will be "hot" in 1995 and 1996. Demand has driven declining vacancy rates in CBDs and suburban nodes alike since 1993, but the vigorous pace of absorption is unsustainably high.
* Market quality varies from solid improvement to extended difficulty.
* Landauer's Momentum Index ranks Salt Lake City on top followed by Columbus and Portland, OR.
* New York, L.A., Chicago, Houston and Dallas, while improving, still fall below the national median.
* The "hole in the doughnut" stereotype is very much in evidence, with suburbs outperforming CBDs throughout the country.
* If net absorption continues to outrun construction, as is likely, there is a high probability of success for those acquiring quality assets in 1995.
THE RETAIL MARKET
With pent-up demand for durables largely satisfied, soft goods should advance smartly in 1995.
* Increasing sales should push retail rents up, especially since construction is below historic levels.
* REITs had a huge impact on the industry, accounting for over a third of major strip center deals.
* Demand is strong for top tier regionals, which have weathered the department store consolidations well. But, those with poor locations and non-quality anchors will fall prey to big discounters soon.
* Power centers are entering a shakeout period.
* The most popular new format is the "supercenter," combining a full service grocery with a big box discounter.
* Austin, Dallas, San Antonio and Ft. Worth all rank in the top ten on the Retail Matrix. Honolulu is in second place.
THE INDUSTRIAL MARKET
Vacancies are down about 2% overall since 1992.
* NAFTA is creating a boom in the Texas economy as dealmakers scramble for new opportunities.
* Owner/users are frequent purchasers, along with power center retailers, pension funds and REITs. Deals in the $3-7 million range, at $20 to $40 psf are most common.
* New development is mostly build-to-suit.
* Warehouse vacancies in Dallas have dipped into single digits.
* Seattle and Portland. OR rank 2nd and 4th in the warehouse Power Ratings.
* Greensboro tops the Light Industrial chart, followed by Nashville.
* R&D markets neared a historic high in average Power Ratings, with Washington, D.C. first, and Seattle, Boston, Minneapolis, San Francisco and San Diego, all university centers, in the top ten.
THE RESIDENTIAL MARKET
Investor interest remains high in multi-family product.
* Cap rates have dipped below 8%, representing the strongest income-to-price ratio of the five major property types.
* Rent corrections are underway in many areas.
* Wall Street has made a best seller of apartment REITs, but the question remains whether capital improvement funds will remain adequate if dividends sag.
* The overall quality of markets on the ACIS scale increased again this year.
* Las Vegas tops the list, followed by Honolulu.
* Investors who purchased properties two-to-four years ago can expect a period of supply/demand stability.
* New money will find lower-priced property types eclipsing multi-family opportunities.
THE HOTEL MARKET
The rush of investment capital into this property type comes as a stunning change of heart.
* Occupancies rose: room rates stabilized, then advanced; overall performance moved toward late-'70s levels.
* Operators such as Marriott figured prominently among the buyers, along with foreigners, Wall Street and REITs.
* Soaring corporate profits should bolster demand for full-service hotels.
* Conventional lending should resume soon. Investors will need to commit significant capital for much-needed refurbishment programs.
* Occupancies rose to 67.5% for the cities in the Hotel Market Equilibrium Index.
* New York has taken the top position from the traditional resort markets of Las Vegas, Honolulu and Orlando.
WHAT TO WATCH FOR
Suddenly everyone is claiming credit for coining the phrase, Stay alive 'til '95, and a consensus is forming around the judgement, "commercial property is back."
* One of real estate's characteristics is its "negative covariance" with stocks and bonds. As Wall Street remains flat or drops, commercial property is poised for a comeback.
* Key questions concern selectivity issues. Will prices change? What's the likely magnitude of the shift? Which properties will fare best? What's the likely geographic distribution?
* Real estate securitization will sort itself out in 1995 with national and mixed-property REITs beginning to compete for investor dollars.
* Institutions will continue to clear their books of REO assets.
* Traditional lending activity will strengthen later in the decade.
* Foreign investment should step up once again.
* The most important lesson is to think long-term.
* The fun is returning, and the professionals' batting averages will improve in the coming year.