In 5 Major Real Estate Areas, L.A. to Top U.S.

In spite of record office building construction, a severe shortage of affordable housing and major defense industry cutbacks, Los Angeles will record the nation’s best overall performance in five real estate segments during the next five years, according to a study by the accounting firm of Ernst & Young and the National Real Estate Index.

The five realty segments are apartments, warehouses, retail, downtown office buildings and suburban office buildings.

The study--”Real Estate 90--The Next Five Years”--was prepared by the accounting firm’s Real Estate Advisory Services unit and the Index, a quarterly publication of the Liquidity Fund, in consultation with eight realty industry figures, eight economists and 400 key corporate executives.

Seattle, “virtually the only major city on the West Coast with affordable housing,” was the second strongest market, according to the study. Seattle has a median home price of $163,000 and has diversified broadly from its one-time aviation-based economy.

Washington, D.C., sheltered from recessions by its governmental-based economy, ranked third, and Houston and Dallas/Ft. Worth “offer the most potential” for large gains as they recover from the Oil Patch recession of the mid-1980s.

New York City, with a glut of office space, and the Northeast in general, were the least favored areas of the country.

Despite a “record number” of new office buildings under construction, Los Angeles appears to show “few signs of overbuilding,” and many foreign industries and businesses have chosen to make their headquarters there, the study said.

The good news, according to Michael L. Evans of Ernst & Young, is that real estate will turn around from its current slump. The bad news is that the turnaround could take five years, according to Richard G. Wollack, chairman of the Liquidity Fund and publisher of the National Real Estate Index, which tracks realty transactions.

Among the other highlights of the study:

--Southern California, with three of the nation’s six top retail markets (Orange County, Los Angeles and San Diego) will dominate the sluggish national retail segment.

--Overbuilding will continue to depress real estate performance in the first half of the decade.

--The West Coast will be the nation’s most favored region, followed by the Midwest and Southwest.

--Inflation, averaging 4.8% a year, will outpace appreciation for all property types.