Fair warning to U.S. real estate players: Resign yourselves to “a slowing grind-it-out recovery” in 2012, as “enduring economic doldrums” continue to weigh heavily on the market.
Your best bets: a small handful of “property-wealth islands,” including San Francisco and San Jose/Silicon Valley, both seen as “primary 24-hour gateways located along global pathways,” according to a report being released today at the Urban Land Institute conference in San Francisco.
San Francisco ranks third out of 51 cities as a place to invest in and develop commercial and multifamily apartment properties and fourth in for-sale home building, with San Jose two or three rungs lower in each category, according to the survey compiled by the institute and PricewaterhouseCoopers.
Washington, Austin and New York are the other top-rated cities.
“We come out very well as top investment places, although even here it’s still a bit of a chug,” said Kate White, executive director of ULI San Francisco.
Put the “chug” down to the enduring doldrums in the housing market, which continues to weigh on San Francisco and San Jose, if not as badly as in other parts of the Bay Area and nation. Even though both rank high in the home-building category, according to the report, their prospects for investment and development are described only as “fair.”
“There’s still an understandable reluctance by potential homeowners to get into the market,” said White.
Not so, however, when it comes to renting or leasing commercial space in high-tech areas like San Francisco’s Mid-Market and South of Market, a trend driven largely by the influx of a younger, more mobile and urban-oriented workforce.
“Gen Y is driving up the demand for apartments and driving up rents, which makes investing in apartments a safer bet,” said White.
Depending on how long it lasts, such a trend could be a game-changer for real estate.
“Living smaller, closer to work, and preferably near mass transit holds increasing appeal as more people look to manage expenses wisely,” notes the report. “More companies concentrate in urban districts where sought-after generation-Y talent wants to locate in 24-hour environments.”
A separate Urban Land Institute report, examining land use changes in California, takes the point further.
Projecting out to 2035, the report says demand for traditional single- family homes will decline, by as much as 10 percent, while “changing demographics” and other factors shift the real estate focus to smaller lots and “multiple or intergenerational households” within walking distance of “transit station areas.”
“California’s future is a lot more urban and transit-oriented than it has been historically. There’ll be an increasing demand for the 24-hour, livable city model,” said White. “The next generation is ushering it in, and local agencies need to plan accordingly.”
— These and other provocative notions will be chewed over at the ULI conference, today in San Francisco at the Hotel Nikko, and Wednesday at the Corinthian Event Center in San Jose. Agenda, speakers and registration at sfg.ly/sDt7tE.
The ULI/PwC report, “Emerging Trends in Real Estate 2012,” can be read and downloaded at sfg.ly/rKT6up.
The California land use report, “The New California Dream: How Demographic and Economic Changes May Shape the Housing Market,” is at sfg.ly/stQrNV.
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