Dennis Yeskey, principal of Deloitte Consulting LLP and national director of the Deloitte & Touche LLP Real Estate Capital Markets pointed out both the good and bad economic messages that are fueling the debate. Record prices, strong corporate profits, a resilient economy and low interest rates are all positive factors for the sector.

"If you are a Goldilocks person you had a huge bump last week with the fourth quarter numbers," Yeskey said. While the numbers are still preliminary, it appears that the GDP rose to 3.4%, which is both significantly higher than Q3 results, which averages 2% of the GDP, and the Q4 forecast of about 2.2% GDP. "There is a rosy scenario going on here."

On the other hand, business consumption declined in 2006, dragged down by the lag in residential construction. Yeskey said, "A lot of people are predicting goldilocks based on this going up." Those predicting recession, point to low personal savings rate, corporate scandals, falling home building and the huge trade deficit, which is likely to come back into focus.

To back-up the Goldilocks predictions, Yeskey said that vacancy is continuing to decrease across property types and geographic markets. Cap rates, which have been falling for the last several years, will continue to decline in 2007 but at a much slower and less dramatic rate.

Additionally, each year there is more money coming into the market, although the amount of new money has slowed down. In 2004, $150 billion of individual dollars came into the US real estate market. In 2005 and 2006 that number was around $215 billion. Yeskey says this is primarily because of the lack of new construction in the states – a fact which further backs his point for the Goldilocks continuation.

In the middle of 2006 there was a shift in the countries investing the most within the United States. Until that shift Australia and Germany were the largest investors, but now, Yeskey said investors from the Pacific Rim and the Middle East are more prevalent. "The single biggest investor was Hong Kong and Dubai," a fact that is likely to continue into 2007.

US investors, on the other hand, will continue to look outside the country for investment opportunities, especially in the larger global cities, because institutional investors are looking for geographic diversification.

Instant Insights /

Conference Listeners Predict Goldilocks Economy

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