Foreclosures in San Francisco should remain in check....
Real estate USA
US metro economies 2011
Real estate Europe 2009
Most powerful cities
NYC prepares for future
Europe's top city brands
ECA: Most expensive cities
EIU: Most expensive cities
Mercer: Most expensive cities
UBS: Most expensive cities
World's richest cities (GDP)
World's top cities
Richest cities (earnings)
World's best financial cities
European business cities
Best world cities to live in
City Mayors reports news from towns and cities around the world. Worldwide | Elections | North America | Latin America | Europe | Asia | Africa |
City Mayors ranks the world’s largest, best as well as richest cities and urban areas. It also ranks the cities in individual countries, and provides a list of the capital cities of some 200 sovereign countries. More
City Mayors profiles city leaders from around the world. More
City Mayors describes the history, architecture and politics of the greatest city halls in the world. More
Mayors from The Americas, Europe. Asia, Australia and Africa compete for the World Mayor Award. More
Use Mayor Monitor to rate the performance of mayors from across the world More
In your opinion: Praise Criticise. Write
City Mayors reports political events, analyses the issues and depicts the main players. More
City Mayors describes and explains the structures and workings of local government in Europe, The Americas, Asia, Australia and Africa. More
City Mayors deals with economic and investment issues affecting towns and cities. More
City Mayors describes and explains financial issues affecting local government. More
City Mayors reports urban environmental developments and examines the challenges faced by cities worldwide. More
City Mayors reports on and discusses urban development issues in developed and developing countries. More
City Mayors reports on developments in urban society and behaviour and reviews relevant research. More
City Mayors invites readers to write about the people in their cities. More
City Mayors examines city brands and marketing. More
City Mayors lists and features urban events, conferences and conventions aimed at urban decision makers and those with an interst in cities worldwide. More
City Mayors deals with urban transport issues in developed and developing countries and features the world’s greatest metro systems. More
City Mayors examines education issues and policies affecting children and adults in urban areas. More
City Mayors investigates health issues affecting urban areas with an emphasis on health in cities in developing countries. More
City Mayors reports on how business developments impact on cities and examines cooperation between cities and the private sector. More
City Mayors examines the contributions history and culture make to urban society and environment. More
City Mayors examines the importance of urban tourism to city economies. More
City Mayors questions those who govern the world’s cities and talks to men and women who contribute to urban society and environment. More
City Mayors profiles national and international organisations representing cities as well as those dealing with urban issues. More
City Mayors reports on major national and international sporting events and their impact on cities. More
City Mayors lists cities and city organisations, profiles individual mayors and provides information on hundreds of urban events. More
No early upswing in sight
for US real estate market
A report by the Urban Land Institute
4 February 2009: Real estate industry experts expect financial and real estate markets in the United States to bottom in 2009 and then flounder for much of 2010, with ongoing drops in property values, more foreclosures and delinquencies, and a limping economy that will continue to crimp property cash flows, according to a report by the Urban Land Institute (ULI) and PricewaterhouseCoopers (PwC). The report’s authors believe a lengthy US recession will also impact on Canada and urge caution in Latin America.
| Needs must | Best advice | Markets to watch | Top 10 Markets | Canada | Latin America |
“Commercial real estate faces its worst year since the wrenching 1991-1992 industry depression,” conclude industry experts interviewed for the report, which projects losses of 15 per cent to 20 per cent in real estate values from the mid-2007 peak. “Only when property financing gets restructured will pricing recorrect so we can find the floor; and this transition could wipe out companies and people,” says one respondent interviewed for the report.
Now in its 30th year, the ULI/PwC report Emerging Trends in Real Estate is the oldest, most highly regarded annual industry outlook for the real estate and land use industry and includes interviews and survey responses from more than 600 leading real estate experts, including investors, developers, property company representatives, lenders, brokers and consultants.
In general, interviewees believe that financial institutions will continue to be pressured into moving bad loans off balance sheets, using auctions to speed up the process. Investors will be discouraged until the “bloodletting” is over, states the report. When that occurs, cash and low-leverage buyers will be “king;” surviving banks will impose strict lending guidelines; commercial mortgage-backed securities will revive, but in a more regulated form; and opportunity funds will need new investment models.
“The industry is facing multiple disconnects,” said ULI Senior Resident Fellow for Real Estate Finance Stephen Blank. “Many property owners are drowning in debt, lenders are not lending, and for many (industry professionals), property income flows are declining. There is an unprecedented avoidance of risk. Only when financing gets restructured will pricing reconcile, giving the industry a point from which to start digging out of this hole.”
“The cyclical real estate markets always comes back, and they will this time too, but not anytime soon,” said Tim Conlon, partner and US real estate sector leader for PricewaterhouseCoopers. “Commercial real estate was the last to leave the party, will feel the pain in 2009, and may be the last to recover. In the meantime, smart investors are going to hunker down and manage through these tough times. We expect to see patient, disciplined, long-term investors rewarded, and return to a back to basics approach to property management, underwriting and deal structure.”
Distress in the housing market is benefiting the apartment market, which the report lists as the number-one “buy.” Moderate-income apartments in core urban markets near mass transit offer the best buy, a trend that carried over from the previous year.
The report acknowledges that commercial markets will recover more quickly than most housing markets, and homebuilders may have to sell land tracts for “cents on the dollar” or face foreclosure on their holdings, adding to the already high rate of mortgage defaults and foreclosures.
The main beneficiaries of the real estate downturn in the US are cash-rich offshore buyers, whom the report predicted will continue to take advantage of the weak dollar, and will buy trophy properties in major 24-hour cities. But, Emerging Trends cautions, “The industry shouldn’t blindly count on a restored well-spring to jump-start transactions and development. The dynamics of capital markets have changed dramatically.”
Noted one respondent: “It’s hunkering down time where the initial winners will be companies that can out-lease and out-manage their competition.”
One silver lining: Interviewees agreed that eventually, savvy investors will be able to cash in on the inevitable recovery, which some see occurring as early as 2010. “Money will be made on riding markets back to recovery and releasing properties, not on…financing structures,” finds the report.
Before a rebound, the following needs to happen
* Private real estate markets need to correct lenders must force distressed owners to become motivated sellers.
* Debt capital needs to flow lenders will need to learn to deal in a more stringent regulatory landscape. The commercial mortgage-backed securities (CMBS) market must “reformulate.”
* Regulators need to restore confidence in the securities market. The government will insert itself into overseeing mortgage securitization markets. Systemic overhaul promises more measured debt flow.
* The economy needs to improve. Falling demand for space won’t affect real estate markets severely until 2009.
* The housing condition is no better and shows no signs of recovering quickly. For lenders, the “subprime mess is the tip of the iceberg.” Stricter lending standards and the weak economy will continue to drain the homebuyer market. “Forget the quick fix!”
Best advice for 2009
* Investors should sit tight. Opportunities will surface at significant discounts.
* Buy discounted loans.
* Recap distressed borrowers invest in maturity defaults, construction loans/bridge loans, or take mezzanine positions and equity stakes in properties.
* Invest in publicly-held real estate investment trusts (REITs) they will lead the market’s recovery.
* Focus on global pathway markets 24-hour coastal cities.
* Staff up asset managers, leasing pros and workout specialists. Separate good assets from bad.
* Retrench on development and reorient to mixed-use and infill. Higher-density residential with retail will gain favor in next round of building.
* Go green cutting energy expenses is likely to be a priority.
* Buy or hold multi-family; hold office; hold hotels; buy residential building lots, but be prepared to hold.
* Purchase distressed condos in urban areas near transit.
* Focus on neighborhood retail centers with strong grocery anchors and chain drugstores .
Markets to watch
In terms of investment, Seattle and San Francisco take the top two rankings, beating out New York City, which has traditionally been ranked at the top for investment prospects. For 2009, New York slips to fourth place, ranking after Washington D.C. Los Angeles “holds its own” in fifth place, but suburban areas outside that city, specifically the housing market in Riverside and Orange County will suffer. Las Vegas and Phoenix get “blown out,” while Florida markets are described as in “disarray.” Markets in the Midwest continue to lose more ground; however, Chicago manages a “fair” ranking in the region-wide decline. Meanwhile, the relative position of Texas markets has improved due to the oil industry.
A snapshot of the top ten markets
* Seattle boasts its “corporate giants,” but the market braces for rising downtown office vacancies; now at 10 per cent. Tepid job growth will flatten rental rates. Housing demand drops and prices will slip, but stay above national averages. Interviewees rate the market a strong “buy” for apartments, and the “number-one buy” among industrials is the Puget Sound ports.
* San Francisco offers a Pacific gateway and a high quality of life with a well-diversified economy. The city ranks first for development and homebuilding, and is a leading “buy” city for apartments and office. Even though housing prices are expected to decline, foreclosures should remain in check, the report notes.
* Washington is the “ultimate hold market when the economy struggles.” Downtown office vacancies should remain below 10 per cent, and apartments lease “no matter what.” The above-average employment outlook offers promise for the retail sector, the report says. Still, office vacancies continue to soar in northern Virginia, and further declines in condominium and home prices can be expected.
* New York takes a beating with the Wall Street “implosion” creating job losses and office vacancies. Hotels should continue to draw tourists with the weak dollar. Retail frenzy ends, but the wealthy keep Madison Avenue boutiques alive. With the condo/coop market at a “crest,” developers “should worry about flagging buyer demand,” the report notes.
* Los Angeles downtown benefits from condo/apartment projects. “It’s almost impossible to lose money on apartment investments if you have a five- or 10-year investment horizon,” notes one respondent. Hotels benefit from global pathway location. One downside -- homebuilders in San Bernardino and Riverside continue to grapple with the housing collapse.
* Houston. Stays relatively strong as long as energy stays hot. It makes the top ten for the first time since 1995. Office vacancies drop to 10 per cent, “a good buy opportunity,” but apartments soften. Cheap land results in cheap housing, and prices have not gone up dramatically.
* Boston. Job outlook is more favorable than most cities, with office space “tight” in the Financial District and the Back Bay area. New “harborside hotels threaten older product.”
* Denver. The state capital has a major federal government presence, which should buffer job losses. Steady population growth and broadening diversification of the industry keeps the housing market stable. Mass transit should pay future dividends.
* Dallas. Compares favorably to other “hot-growth” markets. Although office vacancies downtown are 20 per cent or higher, apartments do well and developers keep building single-family homes.
* Chicago. Apartments do well, but condos weaken as speculators leave the market. Office vacancies are in the low teens, and O’Hare International Airport keeps industrial space in the “global pathway.”
Among property sectors most promising for investment, apartments take top position in the report, with distribution/warehouse coming in second. Downtown office space is expected to outperform suburban markets. Retail development, notes the report, may have bottomed out but could decline further, while the housing industry faces more foreclosures and no rebound in values for 2009.
While most of the report concentrates on the US, it also contains an overview of development and investment prospects in Canada, and, for the first time, an overview of prospects for Latin America.
Canada’s momentum has been undermined by the US economy and respondents worry about a deep or lengthy US recession, which will impact Canadian markets, according to the report. But Canada’s conservative, disciplined approach to lending ensures a steady course. Toronto, Montreal, Calgary, Edmonton and Vancouver all have single-digit office vacancies and other sectors near equilibrium. Vancouver is the top market followed by Calgary, Edmonton, Toronto, Ottawa, Montreal, and Halifax.
In Latin America, impediments still exist, but property investment is more inviting as countries achieve investment-grade credit ratings, and new credit policies power consumer spending and home buying, the report says. These underserved markets are ripe for development of offices, homes, retail and industrial space. Major office markets in Sao Paulo, Mexico City and Buenos Aires lack Class A space, have high occupancies, and solid rent growth. “What made Latin America unsafe for investment has mitigated we don’t face as much economic volatility or currency problems,” noted one respondent. “When you look at Brazil and Mexico, it’s a basic real estate supply/demand equation demand is increasing and supply has been limited,” said one interviewee.
But, the report advises a cautionary approach to Latin America. Only five top cities are considered: Sao Paulo (30 per cent of Brazil’s GDP); Mexico City; Rio de Janeiro; Buenos Aires; and Monterey (Mexico’s factory base). A cultural divide remains and business in Latin America requires a local partner as “everything is based on personal relationships and all business is conducted face to face,” advises one respondent.
...but other part of the US will not be so lucky
On other pages
German cities offer best prospects for real estate
With property values tumbling in the UK, Ireland and Spain as well as in many Eastern European countries, German cities emerge as the new favourites among European property investors. Real estate experts say that German cities are now the most promising and safest ones in Europe to invest in. A survey by the Urban Land Institute and PricewaterhouseCoopers (PwC) places four German cities among Europe’s top ten. Munich and Hamburg are awarded the top two spots, with Berlin and Frankfurt ranked nine and ten respectively.
European investors, developers, bankers, and brokers ranked Munich top of the investment market league table due to a combination of factors including: an increase in government spending, which may lead to future economic growth; the decline in unemployment; a fast growing population and increased consumer spending power. Munich also came top of the European City Risk league table. Munich is seen as having low risk because of its diverse economic base, which mitigates risky investments. Indeed Germany is considered ‘less volatile with more long-term investors’ helping Hamburg to second place with Frankfurt and Berlin also ranking among the top ten for investment prospects in 2009. More