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Grubb Sees Continued Decline in Property Fundamentals This Year - 011410

Fundamentals for all commercial property types will continue weakening this year, although the declines will be less severe than they were in 2009, according to Grubb & Ellis.

The brokerage firm said that while a recovering economy will slow down the pace of vacancy rate hikes, it will not create enough jobs to spur positive absorption until late this year or next.

"The labor market, which often lags the broader economy, will turn around only gradually, with sustained improvement unlikely before the second half of 2010," said Bob Bach, Grubb's chief economist. "The good news is that the freefall 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."

The national office-market vacancy rate is expected to hit 18.5% to 19% this year, which would be up from 17.1% in the third quarter of 2009. It would also be the highest rate Grubb has recorded since it began tracking the market in 1986.

The company expects the amount of office space that becomes available this year to exceed new leasing volume by 25 million square feet, which would be down from the 62 million sf of negative absorption recorded in 2009. Office rents, meanwhile, will drop 2% this year after a 5% decline in 2009.

The industrial sector's vacancy rate this year will hit 11.4%, up 70 basis points from year-end 2009, as the sector's negative absorption drops to 75 million sf from 158 million sf in 2009.

Grubb also noted that industrial vacancy levels could begin to drop in late 2010 because that sector is less dependent on job creation than other sectors.

In the retail sector, weak job growth will continue to cripple consumer spending and drive down retailers' demand for space. Grubb said demand will not increase until 2011.

Multifamily occupancy levels will also be hurt as weak job growth translates to the creation of fewer households, Grubb added. That will continue to dampen demand for rental units, which will have to continue competing against unsold condominium units.

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