In 2011, the U.S. real estate market will be very punishing for those who don’t understand the fundamentals, and for the experienced players who miss the obvious. All too often, builders, developers and investors make decisions based on egonomics rather than economics. So what do the market fundamentals tell us about the coming year? First of all, it will be much easier to identify the challenges, which are national in scope, than the opportunities, which depend on local markets. So, to succeed in 2011, you will have to look for the right niche, rather than try to apply a “one-size-fits-all” strategy.
Our real estate consulting firm’s research indicates that job growth will be the key issue in 2011, affecting both the residential and commercial markets. But it’s important to understand that this is a structural problem for the U.S. economy that dates back a decade – not something relatively new. After the recession in 2001, it took more than four years for the nation to regain its lost jobs. Meanwhile, wages and household income stagnated. Then, after an artificially stimulated “boom,” came the so-called great recession.
Although, the U.S. population increased by more than 30 million from 2000 to 2010, job growth was a meager 400,000. In the past two years, the federal tax cuts and stimulus packages have helped keep our economy going, but they haven’t really added to our job base. Achieving true job growth will be a long-term prospect, involving educating our youth, retraining unemployed workers, and investing in sectors like the life sciences, information technology, or the creative sectors where the U.S. remains a world leader.
In the meantime, all players in the real estate market need to play close attention to local conditions. We see plenty of opportunities to build new ownership and rental housing, to reposition commercial products or to form joint ventures that capitalize on participants’ expertise and financial strengths. In any case, if you start a new project believing that you have all the answers, you probably don’t!