Keep in mind the Urban Land Institute targets institutional investors and developers. That being said, the lead paragraph from the ULI’s Emerging Trends in Real Estate 2012 report:

For 2012, U.S. real estate players must resign themselves to a slowing, grind-it-out recovery following a period of mostly sporadic growth, confined largely to “wealth island” real estate markets—the primary 24-hour gateways located along global pathways. A handful of cities also should continue to benefit from expansion in locally based technology- and energy-related industries. Otherwise, most commercial markets have stabilized, but will find marked improvement in occupancies and rents relatively elusive. Despite some stepped-up bargain hunting, capital generally will continue to avoid commodity real estate in most secondary and tertiary cities. Among the property sectors, only apartments will score especially well: demographic trends and the aftermath of the housing bloodbath combine to increase and sustain demand for multifamily units.

And from the summary for San Francisco, the ULI’s number three U.S. market to watch:

“It’s back”—near the top—and rates as the survey’s best buy for office and apartments. “Bullish market timers bet on room for big future office rent increases, pushing purchase pricing way ahead of fundamentals.” Empty buildings counterintuitively look most attractive to some buyers: “They see so much upside in rents.” In fact, the South of Market district “catches fire”—reminiscent of pre-tech-bubble-burst days in 2000. Computing and internet firms expand to satisfy young tech-savvy hires who want to work and live in the midst of 24-hour city amenities and action. Unlike tentative tenants in most other markets, Bay Area tech companies readily lease large blocks of space for future expansion. But overall market vacancies still register in the mid- to low teens, and demand in this Pacific gateway can fall suddenly.

Emerging Trends in Real Estate 2012 []

31 thoughts on “Urban Land Institute’s Emerging Trends In Real Estate 2012 Report”
  1. Yup, SF being a “24 hour-wealth island” (peninsula actually) is kinda cool 🙂 Makes my survival as an SF landlord more tenable. Several years ago I met this cat who bragged about his commercial bldgs in walnut creek. I wonder if he’s still driving his flash Mercedes around?
    I’m still bullish on SF rents in 2012, and don’t think the “new, new tech bubble” is going to implode next year. But if the sh!t hits the fan in Europe, it’s hard to know what the local repercussive effects will be. Things may get a bit bumpy around us, but I think the 24 hour- wealth island will be fine.

  2. @47yoH, I tend to agree. The linked document is nothing short of glowing with the obvious caveats.
    Here are a few more tidbits from the linked article:
    San Francisco is always volatile—but over time, assets in 24-hour
    markets dependably outperform because they lie on important global commercial routes and attract money from all over the world. The value of their barriers to entry also should never be underestimated. “Prices may be outrageous in the bigger cities, but do you have confidence investing elsewhere?” For 2012, holders and sellers may do better than buyers.

    Foreign Investors Because Europe is melting down in financial distress and inscrutable Asian markets have not met expectations, the United States still looks like a good parking spot for offshore capital, despite anemic prospects. Thanks to the favorable currency exchange rate, foreign players can maximize purchasing power and enjoy further upside if and when the dollar strengthens. “The big European pension funds see more risk in their local markets. The U.S. just seems safer.” Investments, as usual, concentrate in the familiar gateway cities, especially along the coasts. “These are the most accessible markets—the ones along global pathways that they know and visit, and are most comfortable about.” Central business districts in Washington, D.C., New York City, and San Francisco remain the favorites
    In reference to their Rankings of Best Markets:
    San Francisco leapfrogs New York City to number three, buoyed by high-tech hiring

  3. Question for the experts in the house. So with increase in demand for office/commercial space in SOMA and the west Market Street area (Twits coming etc), what is the impact to residential properties in west Soma in the next five years?

  4. @Eddy … you are absolutely correct but that doesn’t mean it shouldn’t be a cause of concern or have ripple effect.

    “So far, the decline in the market has been driven by Chinese government policies designed to deflate what is widely seen as a housing bubble. The government has increased down payment requirements and limited the number of homes people can buy.
    Most observers don’t expect the market to collapse, but given the slowing growth of China’s economy and its exports, there’s anxiety. Cai says a steeper price drop would affect everyone from steel manufacturers to furniture makers.
    “Real estate is a locomotive industry that leads at least 58 other industries,” Cai said. “Doomsday probably won’t come true in 2012, but for the Chinese economy, 2012 will be a very tough year.”
    Cai thinks a real estate contraction would also affect other countries that have relied on China’s heavy demand for raw materials and natural resources.

    The whole piece is worth a read.
    As I said I hope the predictions regarding SF RE are correct, but the state of European and Asia economies are sure to have an impact here in the US.

  5. What are these guys, the Zagat of institutional real estate? It’s like they call up a bunch of people who all missed the bubble, and collate their vapid platitudes into one report. That’s real useful.
    From their 2008 forecast:
    “Back near the top, the City by the Bay shows big survey gains, propelled by resurgent high-tech businesses. This prototypical brainpower Mecca takes advantage of scenery, climate, and strategic location to draw top minds, many incubated at Stanford and the Berkeley and San
    Francisco campuses of the University of California. “People want to live there” despite
    the high cost. “Young techies gravitate to the 24-hour downtown over the burbs.” Good condo absorption may be offset by rapidly increasing high-end inventory. The office market tightens appreciably—“stuck tenants” must pay up even
    for commodity, nonview space or move out of the
    city. Some “wonder if they need to stay.” View
    space breaks $100 per square foot again. New
    projects creep off the drawing boards, and new
    supply won’t be a nearterm drag. City hall’s
    push for affordable housing components in projects
    deters developers. The market ranks as the survey’s top hotel “buy.” Tourists flock to Alcatraz and Ghirardelli Square. Warehouse
    also rates a strong buy. Everyone bets Asian
    trade won’t let up (not a bad wager).”
    And for 2009:
    “The City by the Bay never strays far from the top of the survey, featuring a Pacific gateway
    with barriers to entry and quality of life, comparing favorably to any other 24-hour market. An expected drop in prices and values won’t be “nearly as bad” as during the 2000–2001 tech
    wreck, when office and apartment developers overshot. “No construction glut exists this time.” Expect the well diversified local economy to outperform the national average, helping all property sectors. The city actually ranks first for development and homebuilding (despite scoring mediocre marks), and rates as the leading “buy” market for apartments and office. The city’s transcendent waterside setting helps lure travelers and sustain hotels, while its ports tap into Asian trade. Lofty housing prices fall, but foreclosure distress should remain relatively restrained, especially compared with that seen in
    some overbuilt southern California markets. Silicon Valley’s “energy and enthusiasm return,” impelled by resurgent high tech. Some interviewees warn that software companies won’t be immune to the recessionary downdraft. “That’s a
    disaster waiting to happen.””
    Then 2010:
    “Despite its formidable barrier-to-entry attributes, this 24-hour gateway takes investors on a rock-and-roll ride of up-and-down pricing,
    occupancies, and rents. After a sudden run-up attributable to the late 1990s’ Internet bubble, some financial district office rents approached $100 per square foot and then dropped precipitously by 2001. A solid recovery followed, but now the volatile pattern repeats itself. “Nominal office rates fall to 1982 levels.” Interviewees expect another “quick” rebound—“the market doesn’t look good now, but what’s not to like? It’s diversified, compact, beautiful,and where people want to live.” An expanding regional tech industry, fed by Silicon Valley, should help. Housing leads the recovery after dramatic price declines. Emerging Trends surveys rank the market as one of the top buys for apartments, warehouse, office, and hotels. Cash investors set their sights on properties owned by late-cycle buyers, who purchased at the top and suffer the consequences.”
    I think you get the idea. Office rents were going to $100 psf…until they fell to 1982 levels. Behind the scenes, a recession was underway and prices here fell 15-20% across the board. But diners enjoyed the “rustic ambience” and the yuzutinis, while the foie gras is a “must-have” despite service that can run “hot and cold.” Meanwhile, the “tech boom” will continue to drive high rents despite the fact that “parking is tough” and none of these tech firms seem to have a product “that anyone will actually pay real money for.” Oh yeah – plus everybody wants to live here and they’re not making any more land. Illuminating – can’t wait for next year’s survey.

  6. sure just as I am hoping that the US and SF economy might turning a corner and I can start feeling bullish Legacy Dude come along to smack down my inner Bull.

  7. I’m not saying that I’m bearish or predicting another tech collapse, bdb. I am saying that this company’s “report” is merely a survey of local players. And like most locals, it shows a historical bias towards irrational exuberance, especially where tech is involved. Their historical surveys are posted on their website, feel free to parse for yourselves.
    And maybe everyone on planet earth really is willing to spend $50/month to build up their character/profile on some website or online game. But somehow I doubt it.

  8. Gotta love the loudly proclaimed optimism about the real estate picture . . . of those making a living in real estate.
    “Tourists flock to Alcatraz and Ghirardelli Square.” Hee hee – that is pretty revealing about this “Institute.” So THAT’s why housing is so expensive here. Tourists also flock to Wall Drug, Rock Falls, and Ruby City.

  9. “”Tourists flock to Alcatraz and Ghirardelli Square.” Hee hee – that is pretty revealing about this “Institute.” So THAT’s why housing is so expensive here. Tourists also flock to Wall Drug, Rock Falls, and Ruby City.”
    You’re welcome to stop taking one item out of context and calling it the whole shebang. Any old time, you can go right ahead and knock that off. Regardless of what you’re talking about, you’re more than welcome to understand that everybody is onto you when you attempt to pull that maneuver.

  10. Well this is a report for people investing in real estate not people buying homes to live in. The comment about tourists flocking to Alcatraz and Ghirardelli Square was specifically in regards to investments in hotels and not as a reason why housing is so expensive.

  11. Puh-leeze. It wasn’t specifically in regards to hotels at all. But if it were, I guess it would be a positive sign for hotel developers on Alcatraz. Face it, this “Institute” simply puts out an annual puff piece. This 2009 bit Legacy Dude posted tells all: “An expected drop in prices and values won’t be ‘nearly as bad’ as during the 2000–2001 tech wreck, when office and apartment developers overshot.” It is true that it is not “nearly as bad” as 2000-2001 but in a way that I don’t think the “Institute” was foreseeing.

  12. A privately funded “institute” that gives away their research should be treated like the “annual economic ‘reports'” put out by the NAR.

  13. Lots of news about how 2012 will have “modest growth,” and that we’re 5 years through a 10 year adjustment phase. It’s still a great opportunity for agents and brokers–especially the ones who are aggressively marketing themselves online.

  14. 2012 will definitely be interesting.
    as I’ve said for years, it is all up to the politocos.
    Local SF RE depends on almost exactly the same thing that local Chicago and Local Boston and Local Topeka Kansas RE… politics in DC (and Beijing and now Berlin).
    Local RE including in SF will still be highly dependent on
    -access/availability to credit
    access to credit is key. The largest US banks are horrifically exposed to the Eurozone which could in theory collapse. this will make Lehman look like child’s play. Housing in the US will absolutely tank if this happens. (It is not clear to me if it will or will not happen by the way… depends on what the politicos do).
    The one thing that is somewhat in RE’s favor nationally is the fact that almost all other asset classes are so volatile. Treasuries at 0%, stocks wobbly, Gold/Silver down a lot lately… might push some people into an asset class they can understand. (RE)
    Even I went and looked at a 5 unit rental complex a few weeks ago. The only negative for me is that out in the midwest they are building rental properties like there is no tomorrow. it’s like every failed condo developer decided to start building apartments. but that is likely not possible in SF due to restrictive zoning regulations.
    we are at a very dangerous time in the world economy right now. IMO it’s best to be defensive at this point.

  15. @ [anon.ed]
    I don’t really post much on here, but sheesh, your comments are awfully mean. It’s just a bunch of random people commenting on SFRE — no need to get nasty with folks.

  16. No, they really aren’t. That 2:42 comment was dismissive, yes, but it was deserved. Plain folks never get vitriolic comments from yours truly. Habitual antagonistic fakes tho? All day.

  17. ULI is a respected institution. I think calling their reports puff pieces is exaggeration. Actually they’ve been pretty accurate, judging by the 2008-2010 summaries above. What did u want them to tell you?
    And their audience is institutinal and global, so they need to talk about the things we take as obvious (the usual attributes that make “ess eff” special.)
    As a local investor I find their reports useful- they help me see what institutional players are thinking and to predicate what moves they may make (like buying apartment bldgs, which are an attractive investment now in SF- actually were more attractive 6-18 months ago.)

  18. The Chinese RE market will be interesting to watch! Is it really possible to bring in the RE market in for soft landing? How will the market interventions square with neo liberal economic policy that’s currently in place? I’m guessing that they will eventually opt for the controlled crash landing and austerity combo that’s favored by other other non democratic governments. But, that’s just a guess (and I’m wrong most of the time).

  19. ^ my guess is that the Chinese RE market is going to crash, and crash hard. 30-50% loss in values, including their top 24 hour gateway cities. Thats because it grew too quickly and too fast, it has no intrinsic ballast of value. They also built a ton of infrastructure, so overbuilding RE gets masked. Plus it’s a new, emerging economy- they haven’t had a crash in recent times. I don’t want people there to suffer, but my gut tells me their RE crash is going to make ours in the USA seem modest by comparison.

  20. AT-“Puh-leeze. It wasn’t specifically in regards to hotels at all.”
    Report as quoted above: “The market ranks as the survey’s top hotel “buy.” Tourists flock to Alcatraz and Ghirardelli Square. Warehouse
    also rates a strong buy. Everyone bets Asian
    trade won’t let up (not a bad wager).”
    Puh-leeze, it is obvious that the quoted section of the report is following a format of comment on segment of market, give one line tidbit as to why. Hotels – buy. Comment on tourists. Warehouses – buy. Comment on asian trade.
    Is the report a horribly written puff piece, imo yes. But that doesn’t mean it is okay for you to quote it out of context then pretend you did not just do that.

  21. Rillion, nice editing. You cut off the preceding sentence, all while accusing me of “quoting out of context”! See: “City hall’s push for affordable housing components in projects deters developers.”
    Regardless, sounds like we all agree this is a non-serious puff piece, which was my only point, and nobody could seriously dispute that a sentence like “Tourists flock to Alcatraz and Ghirardelli Square” is an utterly insignificant observation in any context, except perhaps with regard to chocolate sales or tourist ferries.

  22. All anyone needs to do to identify the relevance of this group is to look at the board of directors. A bunch of seriously rich 80 year old white men.
    They have frantically bet on China “decoupling”, where China’s economy takes off while the rest of the world falters.
    The only problem is that the Chinese government has communicated that they think the world economy is in for an “extended global recession”, and more to the point, China’s biggest trading partner is Europe, which is heading straight down and will go down further. Being a centrally planned economy, they are frantically adjusting for this new normal by slamming on the brakes. It appears they are trying to get ahead of the curve and slow even faster than Europe.
    This is going to disrupt the plans of the old white real estate investors, so they are frantically talking their book. Marina Prime has nothing on these guys.
    Newsflash for everyone: there are two ways of making money on research. Either you hide it and sell it, or you use it to enrich yourself by convincing others to buy more of a product or service on which you earn a commission or to get other investors to buy your investments AFTER you have purchased all you want and are looking to sell.
    You wouldn’t publish something like this if you were interested in buying more: that would drive up your acquisition price. Thus, by publishing this cheerleading piece, you can identify two things: 1) they aren’t buying and 2) they want to sell.

  23. ^ yes, but they do influence other idiot institutional buyers, such as the ones buying larger apartment bldgs in SF. As I said above, those that purchased these props 18-6 months ago made good buys (prices relatively low, rent upside in last 12 months.) But to do so *now* is following the heard, i.e. buying later in the cycle increases risk.
    Bottom line: some rich old white dudes make money, some loose money. These reports help delineate that process.

  24. “Average prices in the Shanghai area are down about 40% from their peak in mid-2009, to about $176,000 for a 1,000-square-foot home.”
    “And Chinese aren’t nearly as leveraged as Americans. First-time buyers are required by law to come up with down payments equal to 30% of a home’s purchase price; many put down more. Experts say the government could also lift its buying restrictions.”
    The high DP’s make china’s bust more like the great depression bust then our nothing down bust in that more of the direct losses will be realized by homeowners. 30% DPs in general would add stability, but with 25%-40% drops mentioned in the article that wipes out a great deal of peoples investments. As with many cases in the US some of the people in the article don’t seem rich even by local standards.
    China’s also tough since the official stats can be so unreliable. You can google around and see photo essays and satellite pictures of entire gigantic ghost towns.

  25. AT – I didn’t include that line because again in the format of the report it was referring to the line before it. I probably should have because it makes my argument stronger and further points out how badly you pulled it out of context.
    From the report: “New projects creep off the drawing boards, and new supply won’t be a nearterm drag. City hall’s push for affordable housing components in projects deters developers.”
    So, line about new projects being slow, followed by line about why (low income housing requirements), line about hotels being a buy, followed about why (tourists), line about warehouses being a buy, followed by line about why (asian trade).

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