Real estate is recovering. Yes, you read that correctly.
After the worst collapse since the Great Depression, the sector is on an upswing. It is slow, cautious and fragile, to be sure. But it’s real.
I’ve written before that the Seattle area was due to hit bottom this year in residential real estate and begin a slow rebound. Home prices are rising in King County and listings precious in Seattle itself. Nationally, housing construction grew 15 percent in September, the best showing in four years.
Now much wider evidence of a moderate rebound comes from the Urban Land Institute’s influential Emerging Trends report, which digs deep into the prospects for 2013 and includes interviews with top investors and developers. The survey is compiled along with PriceWaterhouseCoopers.
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Once again, Seattle stands as one of the nation’s top markets. Overall, Seattle ranked No. 7 nationally for investment, development and homebuilding. Its attractiveness comes from having a diverse economy, high quality of life and being one of the nation’s “brain power centers.”
“As the global center for the software industry, Seattle continues to be the focus of many domestic and global investors,” the report states.
Another big advantage is Seattle’s density, walkability and abundant transit, all of which are increasingly in demand, particularly by younger adults. That population, which is closely watched by investors and developers, grew here by 20 percent over the past decade.
One investor said, “Seattle belongs in the primary market category.” In other words, in the company of San Francisco and New York.
Seattle overall dropped from sixth to seventh, a result of stronger sentiment for some other top cities and a warning about the competition we face.
Still, Seattle ranked sixth in investment, seventh in homebuilding and eighth in development. Ratings in each category improved.
As one interviewee put it, “Seattle is experiencing terrific momentum in job growth, with tech companies taking up most of the well-located vacant space.”
A big part of that, of course, comes from Amazon.com, filling up its campus in South Lake Union and planning three towers in the Denny Triangle. And most of the region’s big companies have come out of the recession strong, absorbing space and hiring.
As a result, 47 percent of the survey’s respondents are recommending office-space purchases next year. Those urging a sell fell below 38 percent.
By comparison, only 24.7 recommended a buy in Atlanta, and 11.3 percent in Philadelphia.
(Elsewhere in the Northwest, Portland ranked No. 20. Vancouver was No. 4 in Canada.)
Across the country, apartments are hot, of course. Seattle is no exception.
But here so is industrial space: More than 51 percent of respondents said now is the time to buy.
“Investors favor Seattle industrial space for a few reasons, including the industrial-to-mixed use transition taking place for many suburban industrial and business park sites, as well as the city’s position serving as the main corridor to Asia.”
The great reset in real estate continues. The best city centers are benefiting from companies and people moving in from the suburbs. Much of suburbia, heavily overbuilt during the bubble, continues to struggle.
On the other hand, Bellevue is specifically cited as an ancillary market, near “booming Seattle,” which many investors may find inviting. The future looks promising for suburbs that can become denser and build serious transit hubs.
One of the biggest elements of the reset involves the rising demand for infill in cities with strong economies. “People want to live in areas where walking and transit is all that’s needed,” the report states.
Again, this correlates with educated young adults, who are willing to live in small spaces in exchange for being in a vibrant city.
I suspect the trend isn’t limited to this age cohort, knowing a number of baby boomers who have moved into cities to “age in place.”
This good news requires some tempering. We’re not in for another 2000s boom, and that’s a good thing considering how it turned out. But the major theme of the report, along with other evidence is a modest recovery.
Nationally, the recovery track is slower than normal. This is to be expected from a catastrophic downturn caused by a financial collapse and marked, in real estate, by oversupply and debt. This was not a typical post-World War II recession.
It will take years to fully undo the damage of the housing collapse. Meanwhile, banks are more stable, thanks to us taxpayers, and are in no hurry to unload their foreclosed properties at fire-sale prices.
Risks abound: The eurozone, China slowing, gridlock in D.C., the consumer debt overhang and continued high unemployment. Net worth has contracted for most Americans while income inequality has risen.
Some economists, notably Robert Gordon, see a protracted period of very slow growth.
Still, the survey sees ”noticeably better prospects“ compared with this year.
The respondents weren’t particularly worried about overbuilding apartments, as long as they are going up in urban cores of hot markets. The greater danger is exuberance in already overbuilt Sun Belt locales.
And while investors won’t find boom-era returns, next year should be pretty good for bottom lines. As always, the asterisk is location, location, location.
Once again, Seattle is in a good spot.
You may reach Jon Talton at firstname.lastname@example.org