 The U.S. economy is expanding, now at a slower rate, and investments are on the increase again. The economy appears poised for continued positive growth in 2006. Interest rates remain relatively low and, contrary to conventional wisdom, are not increasing as quickly as expected, creating the famous "conundrum" in the economy. Yet a number of concerns remain on the horizon, especially with the budget and trade deficits; selected residential "bubbles;" post hurricane Katrina, Rita and Wilma impacts; along with the Iraqi war.
Given the past few decades and the cyclical nature of the real estate industry, insiders often pay attention to certain critical issues to determine whether the upward trend will continue, a downward fall is eminent, or if there may be a "soft landing" with minimal impact. Industry professionals often gain insight into where the market is headed by paying attention to these critical issues.
The first two critical issues for 2006 include the following:
1. Economy Growing Steadily, But Slowing. Although the economic outlook has slowed from its highs in 2004,the economy remains relatively healthy with consistently low interest rates and the dollar is attempting to stabilize and possibly continue to improve. Looking toward 2006 and beyond, a number of troubling trends (e.g., the expanding twin U.S. budget and trade deficits) could potentially derail the economy. That said, how will these trends affect the economy and industry, and how strong will 2006 be?
2. Fundamentals Turn the Corner. For the first time in more than three years, most commercial real estate market fundamentals are recovering, with declining vacancy rates and stabilizing rents in many property categories. No place is this more evident than the office and hospitality sectors. If economic growth continues, property fundamentals should continue to improve modestly in 2006. Even if value increases plateau, the increase in property fundamentals could mean that the real estate market has outgrown its former boom-and-bust character; however, the length of time it takes for these fundamentals to trickle down to other areas such as property rents and profitability could affect the overall outlook.
Read the attached report for research findings and predictions on all ten issues in the Real Estate Capital Markets industry. Dennis Yeskey, national director of Real Estate Capital Markets practice, shares his thoughts on the topic. Read the interview. | 
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