Academic Expert Sees Risks for Commercial Realty on Horizon

Ken Rosen, chairman, Fisher Center for Real Estate and Urban Economics at the University of California at Berkeley, is expecting "a lot of uncertainty" relating to the economy in 2005.

At a panel session on the post-election scenario at the Urban Land Institute's annual fall meeting here, Mr. Rosen noted that he expects moderate growth next year due to the risks, which include higher energy prices, increasing interest rates and geopolitical events. In fact, if oil prices continue to go up and the risk of another terrorist attack on the U.S. actually happens, the country could even go back into recession, according to him. He is seeing "huge imbalances as a result of low interest rates" and a housing market bubble in 30 markets in which he considers assets to be overvalued.

Mr. Rosen expects "short" interest rates in the 3.5% to 4.5% range next year, which will result in a long bond rate of about 5.5%. Therefore, he advises borrowers to lock in the current interest rates.

For real estate, what really matters is job creation rather than gross domestic product and this has fallen off after picking up in the spring, he said.

While the U.S. economy needs more jobs, they are not being created in sufficient numbers due to increased outsourcing of jobs and increased productivity of U.S. workers.

"The addition of the global labor force has led to a slowdown in real income growth in the U.S.," as he sees it. Although consumer confidence has been slipping in the last few months, according to Mr. Rosen, the business sector is investing again. One sector for which he sees good prospects next year is defense.

"There are a lot of countries to go after when we finish with Iraq and Afghanistan," he noted in a lighter vein. Mr. Rosen expects the employment rate to grow and capitalization rates used in the valuation of real estate properties to rise "some." Weak real estate markets include Boston, Ohio and Michigan. Las Vegas continues to be strong, due to the "sin factor," along with Phoenix, Washington, Seattle, San Diego and Riverside, Calif.

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