Grubb & Ellis Co. released its annual forecast Monday, predicting that commercial real estate will decline more slowly in 2009, reaching bottom by the end of the year and starting to recover in 2011.

The problem is the labor market, which is just beginning to improve and then only slightly. Because commercial real estate lags the labor market, it still has a ways to go before reaching its own low point, says Bob Bach, senior vice president, chief economist of Grubb & Ellis.

Bach disputes the notion promulgated by some that the commercial real estate market is the next bubble to burst. Grubb & Ellis examines all segments of the commercial market and concludes that across the board the free fall we saw in 2009 is over, and the future is more certain, giving owners and users of real estate the confidence to begin making decisions again, Bach says.

The national vacancy rate is expected to reach 18.5 percent to 19 percent by the end of 2010, the highest since the company began keeping records in 1986. The Austin, Texas, office market is expected to recover most quickly, followed by Washington, D.C., and Los Angeles.

Industrial markets
The demand for industrial space increased in 2009; nevertheless, Grubb & Ellis expects warehouse rents to decline 6 percent and vacancy rates to reach 11.5 percent in 2010.

Recovery is expected to be weak with little demand until 2011. Retailers and owners of retail real estate will need to adapt to a 'new normal' in consumer attitudes that may last for some time, including more conservatism and attention to value as households rebuild their savings, Bach says.

Apartments will benefit from the decline of homeownership rates to pre-bubble levels or less, as well as increased volume of 20- to 29-year-old apartment seekers as the boomers' kids move out on their own.

Source: Grubb & Ellis Co. (01/04/2010)