Key real estate industry experts say that despite some signs of a general economic slowdown, the real estate industry - both commercial and residential - will likely not see any kind of sustained, catastrophic downturn.

Speaking at the recent Urban Land Instutitute Conference in Chicago, Kenneth Rosen of the Fisher Center for Real Estate and Economics in Berkeley, Calif., said real estate is currently the best performing sector in the economy.

"Some (regions) are still in a growth cycle and most sectors are solid," Rosen said. "While we hope for a soft landing for the economy, real estate will be able to sustain even a hard landing. There is no chance of repeating a downward cycle within the next two years."

A couple of key factors are supporting the real estate industry at the moment.

Rosen noted that a large segment of the population will be turning 18 between now and 2010, meaning that demand for rental properties will be on the increase. In most parts of the country multifamily housing construction is barely keeping pace with demand and vacancy rates are down.

Also, he said, continued strong job growth is fueling office space demand in the commercial sector, keeping vacancy rates low and rent prices up.

Retail sector real estate also remains healthy, he said, and "has been largely unscathed by competition from online shopping." He added, however, there is too much new construction in the retail industry overall, as retailers are over-expanding their space and overestimating consumer spending.

Rosen said most of the healthiest markets, in terms of economic growth, are on the two coasts, with a couple of exceptions: the top ten cities for employment growth are Los Angeles, Dallas, Atlanta, Washington, Phoenix, San Francisco, Houston, New York, Tampa and Orlando.

Economist Peter D. Linneman of the University of Pennsylvania in Philadelphia said the only cloud on the horizon was consumer spending.

He warned that strong consumer spending, resulting from the high employment rate, has driven up consumer debt, which could be detrimental in the event of a hard landing for the economy. "People with little equity in their homes and who have purchased large amounts of high-technology stocks are particularly vulnerable," he said.

Although giving the industry generally positive marks, ULI President James Klingbeil of American Apartment Communities in San Francisco, suggested fiscal restraint is always in fashion.

"Paying down debt and improving the company's balance sheet" is the key to being prepared for an economic downturn, he said. When the market slows, "the opportunities are there for people with cash."

Published: November 7, 2000

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