Wheaton to Roundtable: We Are in Uncharted Waters
Economist, William C. Wheaton, speaking to industry leaders at a meeting of the Real Estate Roundtable in January, characterized overall real estate market performance as weak but not dangerously so, although he added a caveat because the cause of the weakness is unusual. He explained, "This time the market malaise is caused by a sharp reduction in property demand rather than chronic overbuilding. The reduction is the result of a sudden contraction in business investment and hits office and industrial properties the most. Nothing like this has happened in the post-World War II economy and so we are a bit in uncharted waters."
He went on to reassure listeners, "We expect a quick turn around in apartments--12 months or so; and little impact on retail. Office and industrial rents will not start rising for a year. Property income in these sector will therefore decline gradually and steadily for the next four years. Cap rates should rise slightly rather than fall, as some analysts have suggested. Real estate is an attractive asset class, but not that attractive. Investment performance over the next few years will be weak but still positive."
The slides illustrating his presentation may be downloaded (pdf, 1M).