Washington tops the list of cities for commercial real estate growth in 2011.

A three-year trend of loss and gloom may be lifting at last, according to the Emerging Trends in Real Estate 2011report, released Wednesday by PwC US and the Urban Land Institute (ULI). Respondents to the survey indicated that their performance expectations were lowered; they now look for core property returns in the high single digits, and returns in the mid-teens for investments that carry higher risk.

According to the report, “lenders with strengthening balance sheets finally step up foreclosure activity and dispositions of properties during 2011 and 2012, helping values reset 30-40% below 2007 peaks.”

Mitch Roschelle, partner, U.S. real estate advisory practice leader at PwC, said in a statement, "The market is predicting extreme bifurcation as the capital flight to quality creates a greater separation between the trophy and less desirable assets. Well-located and well-tenanted properties that can generate strong cash flow over the next several years are exactly what buyers and lenders want, according to survey respondents. As a result, prime apartments and office buildings in gateway cities are generating the most attention from the increasing pent-up sidelined capital."

The survey indicated that “24-hour” cities were the most popular, with the Top 10 being Washington at No. 1 (“the federal government never downsizes”); followed by New York (“TARP and Fed funds directed at banks helped financial markets and eased job cuts”); San Francisco (tech and life science industries, universities); Austin, Texas (“everyone wants to live in Austin”); and Boston (“livability, controlled development, and a highly educated labor force”).

They were followed to complete list by Seattle at No. 6 (“160,000 new residents since the recession”); San Jose, Calif. (“aligns with San Francisco gateway benefits, including a flourishing tech and life sciences industry”); Houston (“expected to come out stronger from the recession”); Los Angeles (for southern California’s gateway status to the Pacific Rim and South America); and San Diego (“desirable climate”) rounding out the list.

Apartments outrank all other sectors, with respondents expecting rent spikes by 2012 in areas where development has stopped. Warehouses and full-service city center hotels are also popular, with suburban office space “get[ting] the cold shoulder.”