Washington has kept its ranking by developers as the top commercial real estate market in the country, but analysts caution that next year marked by single digit returns and minimal — if any — new development.
According to a new forecast by the Urban Land Institute, 2010 will mark the bottom of the real estate downturn but the years ahead will be ones of a slow trudge to recovery and a revamped view on real estate realities.
“We’ve been living in the age of ‘more’ and it all resulted in a lot of losses and major flops,” said Jonathan Miller, author of the Emerging Trends in Real Estate report by ULI and Pricewaterhouse Coopers. “[Now] we’re entering this period of ‘less.'”
That means fewer new buildings and a less than 8 percent return on investment as the new standard, as opposed to the double-digit returns developers enjoyed during the boom years.
Financing will remain the biggest roadblock for builders next year as lenders continue to require higher down payments and more presigned tenants than they did before the recession. That happened recently in Southwest, where a planned office building at the Navy Yard Metro station has stalled because the builder has been unable to find financing.
But that picture could ease in the next 10 years.
“[It’ll last] for a while,” said Steve Blank, ULI’s senior resident fellow. “But amnesia will set in and 80 percent [preleased] will turn into 70 and 70 turns into 60.”
Analysts at the meeting said the District’s market would recover faster than the rest of the nation thanks to its heavy reliance on federal jobs. While private companies are downsizing and creating office vacancies, “the federal government never downsizes,” their report said, and demand for office space in the city is not expected to drop.
Suburban office buildings, however, face an uncertain future as demand has dropped dramatically.
And while next year largely will be about trying to lease buildings that have opened or are being built, analysts targeted apartment developments as one sector that may see marked progress next year.
D.C.’s draw for recent college graduates and for empty nesters is creating a demand that’s attractive to lenders and builders, analysts said. That’s already playing out in the city with several apartment buildings scheduled to open within the next two years in emerging neighborhoods like NoMa and the Capitol Riverfront.
“Investors have a lot of faith here,” Miller said.
