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Tax-Exempt Real Estate 2012: Annual Plan Sponsor Survey
by Institutional Real Estate, Inc.
List Price: $795.00
IREI Monthly Price: $596.25
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New commitments to real estate by pension funds are expected to remain somewhat muted in 2012 due to a variety of inhibiting factors, including domestic and global political and financial market uncertainty, limited liquidity in the debt capital marketplace and the transaction marketplace, an overhang of approximately $68 billion of previous capital commitments that are on the sidelines waiting to be invested, and a narrowing gap between target real estate allocations and actual allocations. Despite these factors, real estate commitments are expected to increase 17 percent in 2012, and investors continue to rank the asset class as the most attractive option on a risk-adjusted basis. For more information on this title, click here to go to the IREI Bookstore.

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Job Growth in April Is Less than Expected
The U.S. economy added a net 115,000 jobs in April, according to the Bureau of Labor Statistics, less than economists' consensus expectations. The nonfarm payroll employment number, released monthly, is one to which commercial real estate investors pay very close attention. Job creation fills office space, and it helps fuel new household formation, and thus supports apartment rents. And people with jobs are more likely to spend money on consumer goods, helping retail and industrial property owner.

Employment sectors showing growth were professional and business services (up 62,000), retail trade (up 29,000) and healthcare (up 19,000). Temporary help saw an increase of 21,000. However, transportation and warehousing saw a decline of 17,000 jobs.

While the pace of job growth might be slowing from the strong showings in the beginning of the year -- the average monthly gain from December to February was 252,000 -- the March jobs total was revised upward to 154,000 from 120,000, and the February total was revised upward to 259,000 from 240,000.

However, the number of unemployed persons, at 12.5 million, and the unemployment rate, at 8.1 percent, were little changed in April. In addition, the number of long-term unemployed is 5.1 million, or 41.3 percent of the unemployed, and was little changed in April. All of which is acting as a brake on commercial real estate fundamentals.

-- Loretta Clodfelter

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The Future Is Upon Us
For the immediate future, American consumers will come to grips with the discomfiting and considerable uncertainty involved in reaching limits that have been exposed by the deep recession, the credit crisis and the impacts of global competition for jobs, states Urban Land Institute's (ULI) report titled What's Next? Real Estate in the New Economy.

Globally, the report states, investors and developers face market prospects that continue to rise and fall in response to an ever more interdependent world economy where emerging economies gain clout, boost demand and generate new business.

A new generation of "advanced manufacturing" is moving into select markets, states the report, breathing new life into communities that have found their voice in a global niche, albeit with lower levels of employment than the old "smokestacks."

In the education market, the dramatic differences in education levels across markets become a major driver in location, not just for businesses but for residents as well. The report continues that in West Virginia, Arkansas and Nevada, only 24 percent of young adults have some form of postsecondary education, whereas in Massachusetts, Minnesota and North Dakota, more than 44 percent of the same population has a college degree. Businesses choose communities with higher education rates; recent graduates are attracted by the good jobs, industry clusters and specializations that naturally occur.

All of this leads to the arrival of generation Y, the largest demographic age cohort in the United States, ranging from the teens through the early 30s. The report continues that with its technologically savvy, highly mobile and hungry to build career while delaying families attitude, generation Y gravitates to more urban places, looking for jobs and craving interactive environments that nurture social diversity and fun. Members of generation Y also prefer flexible working situations, want to live in stimulating neighborhoods and don't mind dealing with less individual space.

Speaking of working situations, demographically, the percentage of working-age Americans is decreasing as the traditional non-working-age population (younger than 20 and older than 65) grows, state the report. That means each working American supports more dependents, stressing family resources. Intergenerational living increases as more families pool assets to help each other make ends meet. On the opposite end of the spectrum, the report states that more households consist of a single person -- 27 percent by 2020. The rise in women living alone creates a new demographic segment seeking greater security and amenities.

With market constraints, such as rising transportation costs, infrastructure deficits and water extremes, what does this all mean for the real estate industry?

It's time to rethink and evolve, reinvent and renew, states the report. Metropolitan areas in the United States represent more than 80 percent of the gross domestic product (GDP) of the country and more than 80 percent of the population. Nearly 100 percent of robust population growth is located in urban areas. Metropolitan growth is embracing a new mixture of land uses, with new suburban centers and in-town reconfigurations providing a new focus on leveraging existing employment centers by elevating the role of education and medical clusters as engines of growth.

The report also states that despite difficult challenges, the United States retains the key attributes and wealth stores needed to drive a globally competitive economy with an innovation edge. Lifestyles will adjust as Americans redefine "the good life" and reformulate their American Dream.

Economic declines historically have been met by resilience and regeneration -- producing new companies and industries, some growing into global leaders.

The report leaves us with one final statement to think about: That can happen again.

-- Denise DeChaine

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"There is a clear bias towards major markets, major sectors and big brand names."

-- Bill Thompson, managing director, real estate capital advisory group, Greenhill & Co., The Institutional Real Estate Letter -- Asia Pacific,
May 2012

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IREI Monthly is edited by Denise DeChaine with contributions from the IREI editorial department. Send us your comments, insights and news items.