'It's not your father's real estate market,' say USC experts
Experts from the University of Southern California's Lusk Center for Real Estate said developers should heed demographic and other statistics to gauge how major trends, such as the growth in the nation's Latino population or the graying baby boomer generation, will factor into local real estate markets.
It may take an unconventional approach to find real opportunities for real estate development and investment, they said.
"Historical trends are not necessarily a reliable predictor of future demand for real estate," said Stuart Gabriel, director of the Lusk Center.
And Stan Ross, chairman of the board at the Lusk Centercolor>, said, "It's not your father's real estate market anymore." Both men made their remarks at the Lusk Harvard Aspen Real Estate Summit last week attended by commercial and residential real estate executives.
Ross predicted developers and investors with stable cash flows from their core businesses and portfolios will be able to expand into fast-growing, specialized markets such as building biotechnology or healthcare facilities, converting obsolete properties to, new uses or constructing housing for immigrants.
"These markets have high barriers to entry because they require specialized knowledge and skills, such as designing and engineering biotech facilities or navigating local zoning and building codes for adaptive reuse projects," he said. "Developers with the requisite knowledge and skills will have a competitive edge."
Gabriel said that developers and investors will have to be well attuned to changing conditions and adept at spotting emerging trends in increasingly complex and dynamic real estate markets in 2005. "While projections of white collar employment are traditionally used to forecast demand for office space, the outlook is complicated by the increasing amount of work done outside the office, the growth in outsourcing, and pressures on companies to squeeze greater efficiency out of every square foot of space," he said.
Gabriel advised developers and investors to pay more attention to comprehensive and detailed demographic, economic and property market research to know how mega-trends will play out in local markets.
According to Ross, developers who first realized the growing interest among older baby boomers, suburbanites, young professionals and others to live in downtown San Diego, Los Angeles, Chicago, Boston and other cities were able to acquire older, obsolete office buildings at relatively affordable prices and convert them to housing.
"These 'stealth' developers moved in, completed their projects, took their profits, and exited before other developers woke up to this opportunity," Ross commented. "Their timing was just right." He said future opportunities may be found in developing retail space for the growing residential population in downtown markets or in converting older and obsolete industrial buildings to residential use.