Mark Costello

(Respondents were split right down the middle last week--50/50--on whether the stock market… uhhh… correction was good or bad for real estate. The specific question really was if stock-market woes push more investor eyes toward the industry or if it just reflects badly on capital markets altogether. Commentator Costello says it really might be just too early to tell. -Ed.)

The jury's still out, because real estate is a reactive industry in many respects and because we don't know if the stock-market dip is going to be a sustained correction or just a blip. If it's a blip, in short order we'll return to the levels we enjoyed before. We can't know if it will create a ripple effect in capital markets and real estate until we understand the nature of what we're currently experiencing.

Furthermore, because real estate lags in so many respects, depending on the sustainability of the correction, I think it will impact different sectors differently. If it's sustainable, arguably you'll have some curtailment of spending and some consumer-confidence issues, which could affect retail.

But, in the office sector, I don't see cities like New York City; or Boston; or Washington, DC being dramatically impacted by this. My sense is that the attraction of real estate, particularly CBD, primary-market real estate, will continue. But I'd add the one caveat that we must understand just how deep and long-term this correction is going to be.

We have to remember that, as I said, real estate is not a leading indicator. In fact, it's a laggard, so I wouldn't be so bold as to say that the correction proves that real estate is a better investment than the stock market. Time will tell. But in the short term, it won't be as severely impacted as other investment vehicles would be."

Mark Costello is Practice Leader for the Real Estate Advisory Services of Ernst & Young in New York City. The views expressed in this article are the author's own.