Economists predict transitional year for market.

Though they might not agree with regard to extent, four leading economists presented their points of view on whether boom-like conditions for real estate will continue through 2006 and into next year at a recent CoreNet Global New York City Chapter breakfast.

The participating panelists were Brian Fabri, chief economist, BNP Paribas; Dr. Mickey D, Levy, chief economist, Bank of America; and Michael Buckley, director of real estate, Columbia Graduate School and Center for High Density Development. Gail Fosler, executive vice president and chief economist, The Conference Board served as moderator,

Calling 2006 "A Year of Transition," Fabri predicted that by the end of the year and into 2007, banks and investors will become "much more risk adverse" with a tightening of credit lines.

"When liquidity goes, the first sector that gets hit is real estate," said Fabri, referring, in this case, to the residential market where he predicts a lowering of perhaps 10%. He also sees consumer spending decreasing as costs rise, with higher inflation. Though hesitant to call it a trend, he feels the economy "is not going to be as good as it's been."

Dr. Levy of Bank of America, discussing the highly favorable global economic outlook, indicated that U.S. economic fundamentals remain very sound and that the U.S. "has the highest potential growth of all industrial nations" with a low labor rate, compared to other countries, that serves to protect against shock.

He does see a modest decline in consumer spending and a flattening in the residential market, though not a collapse or sharp decline, and predicts inflation will remain in check.

Stating that commercial real estate is driven by growth, industrial production and finance, Levy feels real estate will become more linked to strategic business planning.

Buckley shared a Columbia Real Estate Research Report, an International Incentives Study of twelve international cities, citing the quality of life benefits, business drivers and strategic factors that drive corporate real estate location decisions.

His presentation also provided an overview of Columbia University Center for High Density Development's claim that high density development (which he calls urban clusters or clustering) offers competitive advantages.

Among the benefits of locating corporate facilities in high density areas, Buckley cited leveraging expensive infrastructure, increased access to cultural amenities, optimizing workplace proxemics and industry clustering, and demonstrating fiscal performance.

Buckley's report provided an overview of what cities must do, including creating visionary plans, establishing pro-development mechanisms and assembling incentives, to preserve the strategic urban clusters necessary to winning the global economic competition.