Global Real Estate Trends for 2008
Anticipating a more challenging year for the real estate market, Ernst & Young’s Global Real Estate Center has outlined what it sees as the key trends, in its 2008 Real Estate Market Outlook.
Among the highlights:
- 2008 could be a high-level mark for foreign real estate buyers in the US, especially for commercial assets in “gateway” markets such as New York, Washington DC, Miami, Chicago, Los Angeles, Florida, Seattle, San Diego and other coastal markets.
- Sovereign fund investors could outdo private equity, acquiring trophy properties in major markets, large suburban assets and company takeovers, as well as distressed assets such as small and midsized homebuilders.
- Capital will continue to flow into infrastructure projects, with pension funds leading the way as more of them consider infrastructure as an alternative asset class.
Also, don’t be surprised if 2008 sees the formation of the first infrastructure REIT.
- The vast majority of real estate companies aren’t yet prepared for new Fair Value Accounting standards. While some players such as mortgage REITs, already use fair value in booking CMBS investments, equity investors may find both standards more difficult to accept.
- Recovery of the housing market is not likely until 2009 at the earliest, given the unsold inventory of homes. There is also likely to be a trickle-down of loan impairment charges into community and local bank sectors with an accompanying squeeze on credit for borrowers.
- Loan delinquencies and defaults in the commercial real estate sector are expected to increase this year but should not exceed historical norms.
Don’t look for much “new” CMBS issuance until mid-year.
- Because of the global nature of credit markets, commercial real estate pain will spread from the US to Europe and then Asia. Distressed property funds are already forming, and we expect them to be formidable players in the year ahead.
- REIT growth rates should continue strong outside the US - the rest of the world’s market cap is believed to have already surpassed that of the US.
- We are likely to see the first mega private equity deals involving several types of investors collaborating to invest in countries or entire regions through multiple strategies.
- Investment in the hospitality industry should remain strong, especially in US markets such as Washington DC and Los Angeles.
- Infrastructure and hospitality also should help buoy the construction industry, helping offset the drop in homebuilding.
- Existing buildings face challenges in “going green” after easy steps such as changing light bulbs have been taken.
Look for quicker, easier economic solutions to flourish in 2008, such as San Francisco-based Recurrent energy’s “rooftop solar” installations – which provide lease revenue to owners and competitively priced green energy to tenants without additional cost to either.
- Privatization of water supply, water treatment and sanitation systems will spread around the world.
Investment funds that invest in water supply and treatment are likely to be among the best performers in 2008 and beyond.
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February 22nd, 2008 at 2:14 pm
[...] in the broader real estate market, as evidenced by the popularity of Ernst & Young’s Global Real Estate Trends for 2008. Primers on Credit Default Swaps and Structured Investment Vehicles again drew strong interest as [...]