"The national economy is performing very well. There is broad-based solid growth." Sources of growth include consumer spending and profitable businesses. "Businesses are in fantastic shape. Profitability has never been better. Exceptions include the auto and airline industries in addition to non-durable good manufacturing. Businesses are doing so well that "expansion is not a question of can they, but will they."

Going forward, he predicts the economy will be more vulnerable. "New York City will throttle back a notch, but not as much as the national economy." A key factor for this concern is rising energy prices. Zandi said it's possible that oil prices could rise to $70 or $80 per barrel. Another concern is the availability of labor.

Hopper pointed out that while we have been experiencing a period of job growth, it's not near the situation in the 1990s. "It's respectable, but nothing to brag about." In the real estate sector, he expects rental rises to continue.

One issue that's "tempering" the forecast is that there is a rent rollover from leases struck in the 1990s when the dollar amounts were higher. New rents will be at a lower rate. "This will have a dampening effect on growth revenue." Hot office markets include Austin, TX, San Francisco, Orange County, CA and Phoenix.

"There is a very strong global economy," Hopper said. Zandi pointed out that the US real estate market "looks like a bargain" to investors from Europe and Canada. In the long term, he expects Chinese investors will become active in real estate sectors.

ULI New York is a district council of the Urban Land Institute. The event was sponsored by Moody's Investors Services.

Instant Insights /

Economy Could Be 'Tricky' in 2007

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