November 2007 VOL. 2

Investment Notes

New York City is the "hottest commercial real estate market in the country and the "ultimate American 24-hour city," according to the annual Emerging Trends in Real Estate 2008 report produced by the Urban Land Institute (ULI) and PricewaterhouseCoopers LLP.

The report says that vacancies in New York are in the mid-single digits, rents have skyrocketed and pricing is at all-time highs. And while the market may have peaked recently, the weak dollar actually makes the city's "monster" prices look cheap to foreign investors who are pouring and parking money into Manhattan real estate.

Not only is the New York market hot, but the entire commercial real estate industry has also acquired a "New York state of mind" as Wall Street and real estate have converged, according to the real estate experts who were surveyed in the report. The city now sets the tone for the entire U.S. commercial real estate market and influences investor psychology as the bellwether for the rest of the country.

Beyond New York, the top markets to watch, according to the report, are those that have positioned themselves as 24-hour cities with a global pathway to international markets. They all have a major international airport and/or shipping port, export-import hubs, an educated workforce and walkable residential neighborhoods. These top cities have made a concerted effort to revitalize downtown areas or nearby "urban burbs" that have made them magnets for corporate headquarters, business elites, the best and the brightest of the workforce as well as the largest share of investor dollars.

For example, Seattle is also a standout market for investors, receiving top or near top "buy" ratings for all property sectors. Growth controls and geographic barriers have led to concentrated high-density, mixed-use development, which has drawn residents to new downtown neighborhoods, making Seattle a 24-hour city on Asian commerce routes. With so many corporate heavyweights headquartered in or near Seattle, it has a highly diversified economy. Seattle is also the highest-rated metro area for home building.

Other top markets identified in the report demonstrate a clear bicoastal focus, with Boston and Washington, D.C. joining New York as the East Coast's most watched markets. On the West Coast, Seattle, San Francisco, Los Angeles and San Diego top the list. Denver is the lone non-coastal metropolitan area among the top markets to watch.

While investors typically back away from smaller markets during a correction, markets to watch in this segment include: San Jose, Calif.; Honolulu, Hawaii; Austin, Texas; Raleigh-Durham and Charlotte, N.C.; Portland, Ore.; Sacramento, Calif.; Las Vegas; Orlando and Tampa, Fla; Salt Lake City; Jacksonville, Fla.; Nashville, Tenn.; and Minneapolis, Minn.