Looking at the responses from Greater Phoenix Blue Chip Forecast panelists this quarter, the question becomes, Is the glass half full or half empty? If the glass is half empty there will be no quick recovery. If the glass is half full -- at least in the residential market (single-family permits) -- it is moving in the right direction. One would have to be seeing the world through rose colored glasses, however, to be feeling good about the results.
Single-family permits are expected to be up almost 38 percent in 2010 and another 41 percent in 2011. The 2011permit forecast is still 75 percent off of the 2005 peak, but at least we are moving in the right direction. Multifamily permits are expected to increase only modestly over that period of time. Vacancy rates are expected to have peaked in 2009 and 2010, then are expected to decline modestly in 2011.
Non-residential activity, however, is far less sanguine. Vacancy rates in the office market are expected to be the same in 2011 as they were in 2009. The good news is that in 2011 they will have come down off of the peak in 2010. Very little new construction is anticipated, but absorption, after being negative by more than one million square feet in 2009, is expected to be zero in 2010 and almost 800,000 square feet in 2011. Thus, the recovery is likely to be painfully slow with vacancy rates by the end of 2011 in the mid-20 percent range.
Retail is expected to fare just as poorly. With very little new construction, negative absorption in 2009 and 2010 and only very modest absorption in 2011, vacancy rates in 2011 will still be approaching 13 percent.
Industrial has the same story line, with vacancy rates reaching an all-time high next year; in 2011 rates are expected to be about where they were at the end of 2009. Very little new construction is anticipated and absorption should again be negative in 2010 -- albeit much more modestly so -- before increasing in 2011.
Thus, it appears that for commercial, the bottom will be reached in 2010. The path back will be a slow and difficult one. For residential, we are on that slow and difficult path back, but for real estate in general, there appears to be no quick fix.
-- Elliott D. Pollack is CEO of Elliott D. Pollack and Company in Scottsdale, an economic and real estate consulting firm established in 1987. The views expressed in this article are not necessarily those of the university or the W. P. Carey School of Business.