Marcus & Millichap: Investment Market Not Recession-Proof, But in Strong Position to Weather Downturn

SAN FRANCISCO-The real estate investment market is not invincible, but it is well positioned to withstand a downturn in the economy, according to a 2001 forecast report by Marcus & Millichap, the nation’s largest real estate investment firm. According to Harvey Green, president and chief executive officer, “real estate market fundamentals should remain healthy in the next 12 to 18 months, though increased risk exists from the combination of the economic slowdown and sharp corrections in the technology and dot-com sectors.” The following is a summary of the report’s predictions for the apartment, retail and office markets:

APARTMENTS–Baby Boomers and their 20- to 34-year-old children, the so-called Echo Boomers–together the largest and fastest growing age group–are projected to comprise approximately 60% of the US population by 2010, and studies have shown they have a high propensity to rent apartments. New apartment construction will decline by close to 20% in 2001. Construction activity will be concentrated in the luxury, high-amenity and government-subsidized segments, as the increased cost of land, labor and materials–complicated by labor shortages, rising impact fees and worried lenders–make other product types economically unfeasible even in high-growth markets, according to the report.

Austin, Fort Lauderdale, Orange County, CA and the Inland Empire in California will see the most new construction in 2001, while Tampa and Orlando experience dramatic declines and Detroit, Newark, Miami, Houston, Philadelphia and Portland, OR remain somewhat stable. Rising vacancies are expected in Newark, Miami, Philadelphia, Orlando and Tampa, while lower vacancies are expected in Chicago, Detroit, Fort Lauderdale, Miami, Houston, Los Angeles, Manhattan, Orange County, CA and Portland, OR. The tightest markets will be the San Francisco Bay Area, Boston, Washington DC, Denver, Seattle, San Diego and Orange County. Total returns in the apartment sector are forecast to remain in the 11% to 12% range.