vol. XVII no. 1

				Housing to Remain Real Estate's Bright Spot in 2004 Housing will be the bright spot in the real estate industry in the United States during 2004, but high vacancy rates in the office, multi-family and retail markets will keep a damper on nonresidential construction starts, according to Joseph S. Rabianski, chairman of the department of real estate and Richard Bowers & Co. Professor of Real Estate. ''I think interest rates and mortgage money, as well as the prime rate, are going to stay at an equivalent level — maybe up 1/8 or 1/4 percent — and with that taking place, I think the housing market will still stay strong," says Rabianski. "The vacancies in office, multifamily and retail are so high that I don't see many construction starts in 2004 and maybe not even in 2005 until the vacancy numbers drop. I'm not expecting a lot of nonresidential construction this year.'' The oversupply in apartment complexes is reaching the threshold of a 92 percent vacancy rate, which, Rabianski notes, produces a familiar sight: ''You can always tell when the multi-family residential market is oversupplied because you start seeing the clowns and balloons. That happens when the occupancy in apartment complexes starts dropping into the low 90s." Real estate and its related fields comprise 18 percent of the US economy, and the construction and development activity in 2003 was a key driver of American business. Low interest rates have kept the demand for single-family housing high and enabled many Americans to take equity out of their existing properties, which they converted into the consumer spending that also spurred the economy, Rabianski explains. While commenting on national trends, he emphasizes that real estate is strictly a local market phenomenon. A significant rise in interest rates in 2004 would diminish the demand for housing. The point at which lower- and middle-income households are priced out of the home-buying market seems to be a mortgage interest rate of 8 percent or higher, he says. Rabianski believes the city's vacant offices will one day be occupied again. "The spaces will eventually be filled as long as the supply-side construction development people stay reasonable — and the thing that creates reason in their minds is the high vacancy rate," he comments. As the population continues to increase and the trend reverses, vacancies will go down to 10 percent. Then somebody will come in and start building again. ''Vacancies will go back up,'' he says. ''We live in a cyclical world.'' A half-dozen blocks north of Rabianski's office at the Robinson College, the namesake of his professorship, Richard Bowers (MBA '74) is feeling some of the bite of the high office vacancy rates, but he remains bullish on the prospects of the downtown Atlanta market. Bowers, who owns 780,000 square feet of office space downtown, is one of the area's primary visionaries and works out of his beautifully renovated building at 260 Peachtree, directly across the street from the Hyatt and next door to his Southern Company building, which is now more than 90 percent occupied, The 260 building, which was blighted when he bought it, is now more than 60 percent occupied. The metro area's insufferable traffic problems continue to send tenants downtown, reversing the outmigration trend of the past several decades, he says. ''Since the mid '90s, with the tremendous growth that occurred on the north side, 285 and expressways north of 285 became quite congested. Due to the congestion, the access of the urban corridor became more favorable. And the urban corridor has advantages in pedestrian atmosphere, greater amenities, more excitement and public transportation.'' Buckhead has the highest rates rents in the city and Midtown continues experiencing new development, but Bowers points out that the city is addressing the downtown area's "social issues" (e.g., the homeless problem), and the influx of new residents is making the downtown office market more attractive as well. Central Atlanta Progress predicts more than 8,000 new homes will be built downtown by 2007 - a huge leap forward, but only half the number to be built in Midtown. Top | Next Page Back to main "A Sign of Four" page.

Copyright © 2004 Robinson College of Business/Georgia State University.