Twenty-four hour cities lead survey of top metro markets.

The nation's leading 24-hour cities - San Francisco, Boston, New York and Chicago - again rank at the top of Emerging Trends in Real Estate annual survey of markets with the best investment prospects.

Sunbelt suburban metro areas, or the so-called "suburban agglomerations" - Atlanta, Dallas, Denver, Houston and Phoenix -lag in the Emerging Trends survey because of perceived over-building risk. Emerging Trends is published by PricewaterhouseCoopers and Lend Lease Real Estate Investments, and is based on in-depth, confidential interviews with more than 150 leading real estate industry investors, developers, analysts and space users.

The Emerging Trends metro area forecast is tempered by the current turmoil in world financial markets, which threatens a possible recession next year. But high occupancies and limited development in the survey's top cities should cushion them in the event an economic downturn reduces strong tenant demand in 1999.

Emerging Trends coined "24-hour markets" four years ago and strongly endorsed their prospects. Twenty-four hour markets have excellent residential fundamentals with multi-faceted and relatively safe environments, convenient shopping, as well as transportation alternatives to the car. For 1999 and beyond, the report says "Successful metropolitan areas will be those that redevelop and strengthen existing neighborhoods and districts, integrating residential with commercial and recreational uses, rather than expanding and diffusing resources outward."

While many interviewees called 1999 "the year of the CBD," as suburban office markets soften in the wake of heightened construction activity, markets across the county have continued to perform well for investors. Today, cities "bask in a sense of renewed acceptance, with unemployment, crime and poverty rates trending downward." But the report points out that cities still face the triple threat of concentrated poverty, shrinking populations and middle class flight.

The forecast ranks the major U.S. metropolitan areas in the following order: San Francisco, Seattle, Boston, New York, Chicago, Washington, D.C., Los Angeles, San Diego, Minneapolis, Miami, Denver, Houston, Phoenix, Dallas, Philadelphia, Atlanta, St. Louis, and Detroit.

Patrick Leardo, Global Financial Services leader for the PricewaterhouseCoopers Real Estate Group, said "Barring severe disruption in the U.S. economy overall, property yields should be reasonably attractive, although not spectacular, for the next few years - particularly in the 24-hour cities. For the most part, real estate fundamentals remain strong, with low vacancy levels and little speculative development underway. In the cases where investor confidence is softening, it appears to be mostly for non-real estate reasons."

Ray D'Ardenne, Chief Operating Officer of Lend Lease Real Estate Investments, said "The recent financial market turmoil has created considerable uncertainty and can be expected to at least take the edge off absorption and lowering vacancy rates in many markets. But most metro areas are well positioned to withstand a potential economic recession, since development is under control and markets are in relative supply-demand balance."

Among the report's highlights are:

San Francisco: Enacted growth restrictions, environmental concerns and geographic boundaries make development projects difficult. Meanwhile, vacancies hover around 5 percent. The market is topping off. Asian problems and enduring high-tech stock collapse in Silicon Valley could cool entire region.

Boston and New York: Low vacancies and few development opportunities mean tenants have few space options. But a financial market downturn could short-circuit demand.

Chicago: Strong absorption has fueled big rent spikes and lowered vacancies. As many as 10 downtown projects posture for the money and tenants to get them started. It looks like capital will retain discipline.

Los Angeles and San Diego: Southern California markets show strength in certain suburban areas, but the downtowns are still relatively weak, with mediocre long-term prospects. Neither downtown LA nor San Diego has a strong residential backbone.

Houston, Phoenix and Dallas: Spreading out in all directions, development gets easily ramped up, and investors are backing off. The best time to invest in these markets is early in the recovery cycle. They bounce back more quickly and soften more quickly. Now is not the best time to invest, although developers and owners have been making money, and these markets have not deteriorated dramatically.

Atlanta: Number one in the survey three years ago, number 16 today. The Atlanta area is suffering growing pains. How the region addresses traffic congestion, inadequate infrastructure, including water/sewer capacities, and extension of its rapid rail system will determine whether it expands into suburban oblivion or takes on a healthy urban dynamic.