Emerging Trends report for 2006.

Although a continuous flow of capital has kept the real estate industry stable overall, expect growth in 2006 to be more moderate compared with the robust levels of 2005, according to a report released by the Urban Land Institute (ULI), Washington, D.C., and PricewaterhouseCoopers LLP, New York.

The report, Emerging Trends in Real Estate[R] 2006, noted that much of the outlook for the real estate industry in 2006 will depend upon what happens with a variety of economic factors such as consumer spending, energy prices, housing demand, job growth, corporate productivity gains and inflation.

"Despite improving market fundamentals and continuing capital infatuation with real estate, Emerging Trends interviewees signal caution over a looming transition to a period of more measured, possibly lackluster, performance," the report stated.

However, the report also emphasized that the lower expectations voiced by the participants "do not translate to anything dire," and the consensus forecast suggested that real estate will hold a value edge over stocks and bonds, at least in the near future.

The report noted that solid corporate earnings translated into only moderate hiring in office jobs. The continued focus on cost-cutting, managing space costs and productivity increases--including technological advances that enable more employees to work anywhere--will dampen demand for office space.

Meanwhile, the threat of inflation will continue to become more pronounced as the influence of hurricanes Katrina and Rita pushes up the costs for both construction materials and energy, noted ULI and PricewaterhouseCoopers.

"Expect the storms' impact to be decidedly mixed. The nation's reduced refining capacity threatens to sustain record or near-record gasoline and home heating prices just as government economic stimuli--low interest rates and tax cuts--have lost their effect," the report stated. "Building materials can only become more expensive as the massive clean-up and reconstruction gear up, opportunely restraining development passions in slowly firming commercial markets."

Looking to 2010 and beyond, Emerging Trends respondents said that during the next real estate cycle, property markets will become more global and more public, while U.S. real estate markets will sustain interest from numerous sources of capital.

Further, in the years ahead, concerns over sprawl, traffic congestion and the likelihood of higher energy prices will accentuate the desirability of both suburban town centers and more convenient urban living environments, the report noted.