Saturday, October 31, 1998

Survey names San Francisco, Boston, New York, Chicago top real-estate cities

By JANET MORRISSEY

Dow Jones News Service

NEW YORK (Dow Jones News) -- San Francisco, Boston, Seattle, New York, and Chicago are the cities with the best real-estate investment prospects, according to Emerging Trends In Real Estate, an annual survey of markets conducted by PriceWaterhouseCoopers and Lend Lease Corp.

Suburban sunbelt areas, such as Atlanta, Denver, Houston and Phoenix, lagged on the list as a result of "perceived overbuilding risk," the study said.

High occupancy rates and limited development are expected to cushion the survey's top cities if an economic downturn grips the industry and lowers tenant demand in 1999.

"Barring severe disruption in the U.S. economy overall, property yields should be reasonably attractive although not spectacular for the next few years ... real-estate fundamentals remain strong -- with low vacancy levels and little speculative development underway," said Patrick Leardo of PriceWaterhouseCooopers Real Estate Group. Leardo said any softening of investor confidence is "for non-real estate reasons."

Atlanta, which was the No. 1 pick three years ago, dropped to 16th in the latest survey. How the city addresses its "growing pains" -- traffic congestion, inadequate infrastructure, and extension of its rapid rail system -- "will determine whether it expands into suburban oblivion or takes on a healthy urban dynamic," the study said.

The survey also said real estate should offer "the best investment alternative to stocks and bonds over the coming year" because of "low inflation, low interest rates, solid market fundamentals, and more investment choices than we've had in a lifetime."

The biggest risk to real estate is not overbuilding -- but a deep recession that would sink demand, the report said.

Emerging Trends named the industrial warehouse sector as the top pick on a risk-return basis. A strong economy is expected to keep this group's occupancies high and rents up.

About 20 percent of the study's respondents rated suburban office markets as a "buy," compared with 50 percent two years ago. With development currently underway, vacancies are expected to hold in the high-single digit or low-teens range while rental growth will likely slow.

Central business district office properties will see strong rent growth in 1999, the survey said. New supply is about two to three years away in most cities and large tenants are scrambling to find space, it said.