Investment in Honolulu real estate is expected to be fair and development moderately poor as the United States' financial and real estate markets continue bottoming out this year and floundering into the next, according to the Emerging Trends in Real Estate 2009 report, released yesterday by the Urban Land Institute and PricewaterhouseCoopers LLC.

Hawaii's slumping visitor industry may be one of its greatest commercial real estate concerns during the current cycle, said Jonathan D. Martin, principal author of the report, which is based on surveys from more than 600 leading real estate experts from investors to developers, brokers and consultants.

“;Given Honolulu's dependence on tourist travel, the market could face headwinds next year - companies will cut back on corporate events and individuals will be scaling back vacation plans,”; Martin said. “;As a result, the local economy is probably more vulnerable to recessionary impacts, and that will hurt hotels and shopping centers especially.”;

In general, commercial real estate faces its worst year since the wrenching 1991-1992 industry depression, said Urban Land Institute Senior Resident Fellow Stephen Blank, one of the principal researchers for the report. The ULI is a nonprofit education and research institute supported by more than 40,000 members representing all aspects of land use and development disciplines.

“;Many property owners are drowning in debt, lenders are not lending, and for many (industry professionals), property income flows are declining,”; Blank said. “;There is an unprecedented avoidance of risk. Only when financing gets restructured will pricing reconcile, giving the industry a point from which to start digging out of this hole.”;

Those surveyed for the report have projected losses of 15 percent to 20 percent in real estate values from the mid-2007 peak, Blank said.

In terms of investment, Seattle and San Francisco took the top two report rankings, beating out New York City, which has traditionally been ranked at the top for investment prospects. For 2009, New York slipped to fourth place, ranking after Washington D.C. Los Angeles held fifth place, but suburban areas outside that city, specifically the housing market in Riverside and Orange County, could suffer. Honolulu ranked 16th out of the 50 markets.

In general, the larger 24-hour coastal cities and gateways will fare the best, while smaller markets like Honolulu likely will suffer greater value declines and recover more slowly, the report said.

“;Honolulu needs to worry that Asia travel doesn't slip,”; Martin said. “;Domestic business already dips due to rising airline rates and consumer belt-tightening.”;

The ongoing flight to quality could steer investors away from the smaller markets sitting off global pathways with less diversified economies, he said.

The cyclical real estate markets always comes back, and they will this time, too - but not anytime soon, said Tim Conlon, partner and U.S. real estate sector leader for PricewaterhouseCoopers.

“;Commercial real estate was the last to leave the party, will feel the pain in 2009, and may be the last to recover,”; Conlon said. “;In the meantime, smart investors are going to hunker down and manage through these tough times. We expect to see patient, disciplined, long-term investors rewarded, and return to a back-to-basics approach to property management, underwriting and deal structure.”;