No surprise—San Francisco and New York lead as the top Emerging Trends’ markets, followed by Houston (an energy boost), Boston, Seattle, and Washington (down from number one the last four years). One thing you can be sure of--the nation’s prime 24-hour cities will maintain their perennial market standing with some shifts year to year for the foreseeable future. D.C.’s drop may be a good sign for overall market self-control. Investors backed off in the face off significant cap rate compression and some softening in the suburbs with concerns about possible federal government cutbacks. Without increased tenant demand to prop up fundamentals other top tier 24-hour markets may experience a leveling off of pricing too over the next 12 to 18 months. But D.C. will be back on top as soon as the economy backs up again—it’s almost guaranteed, and investors would be silly not to want to have stakes in such a solid market.

According to ET, yield chasers will head into secondary and tertiary cities—as discussed in previous blogs. But they need to be careful—buy income producing properties only well below replacement cost. In most of these markets, you cannot count on significant demand spikes and any new development can be a threat to existing properties.

Clouding all the relative good news is concern over the worrisome world economic backdrop and the fiscal cliff. In the post-election U.S., the politicos in Washington will either start the necessary process of paying down the debt by some combination of raising taxes and cutting spending or continue to put off the day of reckoning. If they take the former track, the economy is sure to lag—the government will be funding fewer jobs and people will have less in their pockets to spend or save. If the latter, we’re all just fooling ourselves—raising the stakes that interest rates will increase and inflation will get out of control.

So should we be so optimistic?