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Looking for guaranteed returns on your real estate investments?
Then look no further than Washington, D.C., New York City, southern California and south Florida, which have been ranked as the top markets into which to sink your dollars.
That's the opinion of about 500 experts who participated in "Emerging Trends in Real Estate 2005" compiled by the Urban Land Institute and PricewaterhouseCoopers.
The experts remain upbeat but cautious about real estate investments in general. They remain concerned about the economy and job growth and the likelihood of higher interest rates.
A key highlight of the coming year will be the race between improving fundamentals -- occupancy rates, leasing rates, operating expenses, and other factors and those rising interest rates, according to the study.
Factors that could impede economic expansion include federal budget and trade deficits, the weak dollar, consumer debt, inflationary pressures from high oil prices, rising health-care costs, "choppy" job-growth prospects, unease over terrorism threats and the war in Iraq.
Most new jobs have been created in service industries such as restaurants, temporary employment agencies, retail sales and building services -- niches that the study says "don't fill office buildings or have the earning power to generate growth in other property sectors."
Part of the reason is the maturing of America's dominant businesses -- telecommunication, financial services and pharmaceuticals -- which have been undergoing consolidations to reduce inefficiency, the study concluded.
Many of the experts interviewed said they are looking to health care and biotechnology to stimulate new job growth, particularly as baby boomers age.
Although the growth of the Internet has reduced both the need for office support staff and expensive headquarters space, discussion of "offshore outsourcing" was dismissed by many of those interviewed as "media hype."
One executive suggested that because the economy is in transition, "offshoring is a moderator of growth. It is not as dismal as the alarmists predict, but it is part of the current lag and may be stalling some of the near-term acceleration."
Among the markets to watch, Washington is considered a "government mecca" practically immune to economic downturns; New York remains a world hub for finance and culture, southern California has a strong mix of entertainment, defense and biotechnology industry; and south Florida -- specifically Miami -- is benefiting from both a baby boomer influx and proximity to South and Central America, the study said.
One expert contended that Middle America is a hard sell. "Smaller markets must make do on local country club money," rather than outside investments.
The top markets all feature international gateways with physical-growth barriers, solid economic underpinnings and are magnets for immigrant labor.
"As technology and global capital flows integrate economies and industries across national borders, cities and markets enjoy better prospects if they can link their fortunes to the evolving international growth path," the study suggested. "The deck is increasingly stacked against a Kansas City, Milwaukee, or Indianapolis, which pale in comparison to American powerhouse markets, but also face difficulties competing to attract commodity jobs in offshore face-offs against Dublin, Manila or India."
Although their populations are growing, Dallas, Houston and Atlanta lose support among investors because of unrestrained development and poor growth management, the study reported.
The desire to avoid long traffic commutes gives an advantage to markets with mass transportation networks. In general, the success and resilience of the most attractive investment locations can be attributed to 24-hour market characteristics such as upscale infill neighborhoods near commercial districts, convenient pedestrian-friendly retail, ample recreational and cultural amenities and ample transit options, the report says.
Although commercial construction could pick up from this year's dormant levels, prospects remain restrained. Until markets achieve better supply-demand balance, investors are more focused on buying land, gaining entitlements, and planning projects rather than funding construction, the experts said.
The outlook for housing development, however, remains far more promising, with infill and in-town housing again topping the survey development scorecards.
While the move back downtown by empty nesters and childless professionals "cannot be ignored," demand should hold steady for suburban single-family housing "as long as interest rates remain manageable," the report said.
"Master planned and new urbanist communities tap into rising homeowner demand for neighborhoods featuring more integrated land uses and access to convenient amenities, the report said. "People seem willing to pay premiums for better planning."
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