Washington, D.C. — There’s light at the end of the tunnel for commercial real estate, but the industry’s recovery will play out in an “era of less”, according to the Emerging Trends in Real Estate 2011 just released by PwC and the Urban Land Institute.

Every property sector will be affected by macroeconomic transformations that have taken place. As a result, the conditions that caused property values to surge to lofty heights in 2007 are not likely to materialize again.

What it means concretely is that the U.S. is seeing a return to multigenerational households. Children are living with their parents longer due to diminished job prospects and high student debt loads. And baby boomers—with reduced savings—are increasingly living with their children rather than relocating to swank retirement communities.

Indeed, recent data from the U.S. Census Bureau shows that between March 2009 and March 2010, the number of households rose by just 357,000—the lowest level since 1947.

Scaling back means fewer cars, smaller offices and fewer distribution links. As a result, every commercial real estate sector faces some continued scaling back rather than any increased demand for new space in the near future. In this climate, investors should anticipate high single-digit returns for core properties and mid-teen returns for higher risk investments.

Jonathan Miller, the report’s principal author, and Stephen Blank, a senior resident fellow for real estate finance with ULI, revealed the annual report’s findings at the Urban Land Institute’s Fall Meeting being held in Washington D.C. through Friday.

Miller and Blank both emphasized that the outlook for commercial real estate had clearly improved from a year ago, but were quick to point out that any enthusiasm should be restrained by the many challenges that remain.

To continue reading, please click this link.