After some bold predictions in 2009, for the year of 2010, our group wanted to take a moment for reflection. This is a consideration of mine, mainly because of the accuracy of the prognistications. Ha! Truth be known, we are not economists, rather, we are trained investment specialists that seek the latest data from the macro economy and apply it to the real estate markets, nationally and locally.
I must say that it is particularly rare for real estate practitioners to provide their clients with macro or micro information, as the data may conflict with their ability to become compensated. As a group, we choose to address such issues with our clients, whether they may positively or negatively impact real estate decision-making and ultimately, the success of the asset and organization. We know this, along with our unwavering loyalty preceding, throughout and following the negotiation of the transaction will provide our group with subsequent business opportunities.
Regarding transacting today, given that we are exiting a ‘bubble’ period where the due diligence to obtain leverage or excess liquidity far outweighed the actual placement of funds into the tangible asset, we firmly believe that now, every decision should be underwritten using a best, current and worst-case scenario. This attention to detail should also be implemented in simpler tasks, such as determining expansion locations, renovating or relocating, or purchasing a vacant property, as the market’s psychology has changed.
Given this ‘caveat emptor’, we are greatly looking forward to representing our clients in 2011! Through our experience and accumulation of the most recent technological tools, we feel that no matter the outcome (transaction or not), we would like our clients to have benefited from the relationship.
A quick prediction: In 2011, our clients will have the opportunity to view several new opportunities worthy of consideration which, over the last 2+ years, did not materialize. In terms of leasing, our business clients will have the opportunity to discount their rent by as great as 25% and relocate to better buildings. Our medical clients will see greater opportunities for expansion, as well positioned buildings come onto the market and once built-out medical spaces become vacated or subleased.
As for our 2011 predictions, we have yet to determine the method in which we will project them. Our 2010 forecast was one of our most successful posts, and due to its popularity (hits) throughout the entire year, we can only wish for a repeat. Each of the 12 bullet points in our 2009 post are below…
2010 Predictions (See Old Post Here)
1. Houston: We Do Not Have A Citywide Recession – By Year End.
Added, the government will increase its presence in the city via census and new jobs, this will buoy the employment market to positive numbers by year-end.
Understandably, via significant government intervention, we are kicking a can down the road. But I feel all of the credit bubble, national debt, doom mongers will likely have to hold their tongues throughout 2010.
2. Houston Tenants: Get Prepared, Opportunities are Appearing
Lease renewals dominated the 2009 leasing market, but as downsizing and deferred maintenance issues arise, I think the second half of the year we will see a pickup in companies relocating.
Expect end of 2010 rental rates to mirror 2004 or 5′s. In essence, the office leasing market will have pulled the slack from the 2006-2008 increases – tightening the rope towards a longer term trend.
3. Deflationary Pressure Continues
I believe the Fed and government pull out all of the stops to fight the deflationary threat. With new consumer stimulus programs, tax rebates, government lending, pressure on the banks to lend and the printing presses running overtime, all of the newly-created money will eventually work its way into the system and as the velocity increases, deflation will subside and inflationary pressures will materialize.
4. Stock Market Rangebound
As stocks are mainly a cash market, the deflationary impact felt in the credit markets will have little impact on stocks. The market is due for a correction and there may be short volatile swings as investors lose confidence, but I think the market will end the year little changed (+/- 5%).
5. Fed Funds Rate to Remain Near Zero
While many are anticipating a rise in rates during 2010, I believe the Fed will be forced to keep rates low due to deflationary pressures. Any rate increase would wreak havoc on the markets and this is the Fed’s biggest fear.
6. National Real Estate Prices Flat to Lower
As real estate is heavily reliant on the rapidly-contracting credit market, deflation will trump any inflationary pressures created from the expansion in base money.
7. Unemployment Remains Stable
8. U.S. Dollar Rallies, but Drops to New Lows by Year End
9. Gold and Silver to Make New Nominal Highs
Cash-based markets such as precious metals are likely to experience inflation as record amounts of new money have been printed during the past year. Look for more central bank purchases during 2010, as well as significant purchases from China and other countries that are eager to diversify away from dollars.
10. Energy Prices to Trade in Range
With the strengthening economy, increasing demand from China and India, plus declining supplies, I expect energy prices to move higher during 2010.
As I write, we are already nearing $80. Oil will trade most of the year in the $70-$90 range, likely nearer to the upper end of the range.
11. Agriculture Prices to Rise
I believe prices for many food items will move higher in latter 2010 and significantly higher in subsequent years.
12. More Bank Failures, Political Tension, Voter Discontent
I anticipate a large number of banks will fail during 2010, more than double that of 2009, allowing the largest banks to scoop up smaller competitors at bargain prices.
We were fortunate to get the majority of our predictions correct. When we polled some of our peers, we found that the majority were interested in our 2011 predictions. As for our group, we give ourselves an…