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US Real Estate Markets To Full Recover In 2004

February 14, 2002

By Peter Korpacz,
Director, PricewaterhouseCoopers

NEW YORK, NY -- - According to PricewaterhouseCoopers' semi-annual Real Estate Value Cycles report released today, U.S. real estate markets will experience a full recovery in 2004. "As compared to the last real estate downturn in the early 1990s, the real estate industry is poised to weather the recessionary storm much better and to quickly follow with an economic recovery," said Peter Korpacz, Director of PricewaterhouseCoopers' Global Strategic Real Estate Research Group

Highlights From The Report:

The majority of markets will remain in contraction, rather than recession in 2002 and through 2003. Expansion and recovery are predicted by the end of 2003 and into 2004 throughout the industry, according to PricewaterhouseCoopers Real Estate Value Cycles.

Hardest hit in 2002 and beyond will be the office sector. The warehouse sector will experience a very steep downturn, but recovery in this sector will be swift. Multifamily and retail sectors are poised to survive the downturn.

Office Market

The office market will show continued weakness through 2003. In 2004, the percent of the market in recovery and expansion will grow significantly.

In 2002, of the 3.5 billion square feet in the office market, 3.3 billion square feet will be in contraction or recession, and .2 billion square feet will be in recovery or expansion. By 2004, 2.5 billion square feet will be in contraction or recession, and 1.2 billion square feet in recovery or expansion. Office markets with the greatest value potential include Austin, Las Vegas, Riverside, Phoenix and Kansas City. Markets with stable value prospects include Honolulu, Washington, New York, Northern New Jersey and Nassau-Suffolk County, NY. Markets that will find it harder to emerge from the recession phase and that will have limited value potential include San Diego, Oakland, Houston, Sacramento and Seattle.

Warehouse Market

The warehouse market is tied very closely to the economy. While many markets will be in contraction and recession this year, this will change dramatically in 2003 and 2004 as the economy improves.

In 2002, of the 5 billion square feet in the warehouse market, 4.85 billion square feet will be in contraction or recession. There will be no expansion in this market, and less than .2 billion square feet in recovery. By 2004, there will be no contraction or recession in this market, and 3.5 billion square feet will be in expansion, and 1.6 billion square feet in recovery. Markets with greatest value potential include Richmond, Baltimore, Orlando, Fort Lauderdale, Cincinnati, Charlotte, San Antonia, Raleigh-Durham, San Francisco and Dallas. Markets with stable value prospects include Salt Lake City, Nassau-Suffolk, Boston, Seattle, Cleveland.

Retail Market

Annual retail sales performances for 2001 were up 2.7% over the same period in 2000. This insulated the retail sector from further deterioration and will provide a strong recovery. "Consumers are still spending. Retail sales (excluding autos) were up over 2.5% last year led by value-oriented stores, such as Wal-Mart, Target, and Kohl's, which grew at an even higher rate. We are Americans...therefore, we shop. And we know how to find the bargains," said Korpacz

In 2002, of the 5.2 billion square feet in the retail market, 5 billion square feet will be in contraction or recession--over 4.2 billion square feet of that in contraction--and .2 billion square feet will be in recovery with no markets in expansion. By 2004, there will be a sharp drop of markets in contraction to 2.1 billion square feet, and no markets in recession. Over 3 billion square feet will be in expansion or recovery. The retail markets with the greatest value potential include Las Vegas, Orlando, Atlanta, Austin and Los Angeles, while the markets with stable value potential include Oakland, San Francisco, New York, Boston and San Diego. Markets with limited value potential include, Jacksonville (FL), Oklahoma City, West Palm Beach, Riverside, and New Orleans.

National Multifamily Market

Although most individual apartment markets have been contracting since 2000, the multifamily market is positioned for a mild recession in 2002, followed by a return to expansion in 2003. Given the moderating supply, the multifamily market is positioned to increase value and rent levels in 2003.

In 2002, of the 11.85 billion square feet in the national multifamily market, 7.1 billion square feet will be in contraction. Another 4.5 billion square feet will be in recession, and .25 billion square feet in recovery. By 2004, 7 billion square feet will be in contraction, and another 5.6 billion square feet will be in recovery or expansion. There will be no markets in recession. While new supply has outpaced new demand in Orlando, Austin, Columbus, West Palm Beach and Richmond, PricewaterhouseCoopers? research suggests that these markets will hit bottom in 2002, gradually recover through 2006, and become the cities with greatest potential for value increases.

Real Estate Value Cycles® is published semiannually by PricewaterhouseCoopers. For information about subscribing to this publication or about other products, call (631) 234-5143 or visitwww.pwcreval.com

Source: PricewaterhouseCoopers



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