Grubb & Ellis predicts slow, “U-shaped” recovery for CRE market

In its annual forecast report Grubb & Ellis says that in 2010 the U.S. economy is most likely to experience a slow, weak, “U-shaped” recovery.

In its annual forecast report Santa Ana, Calif-based Grubb & Ellis says that in 2010 the U.S. economy is most likely to experience a slow, weak, “U-shaped” recovery.

“We believe a U-shaped recovery is most likely, with the labor market bottoming in the second half of 2010 and sustained job growth returning in 2011. The labor market is unlikely to recoup the 8 to 9 million lost jobs until 2014 or 2015. Inflation will not be an issue in 2010, but could become a problem down the road unless the government takes steps to control its debt. A little inflation could burnish real estate’s long-dormant reputation as an inflation hedge,” the report states.

Robert Bach, senior vice president and chief economist of Grubb & Ellis Co. was one of the panelists at the BizTimes Commercial Real Estate and Development Conference in November.

The Grubb & Ellis report says that the multi-unit housing market will recover first, followed by the industrial market, then retail and then office.

“Longer term, apartments will benefit from the return of homeownership rates to pre-bubble levels (if not below) and growth of the 20 to 29 age cohort as the boomers’ kids move out on their own,” the report says.

For the industrial market, the reports states, “expect leasing market conditions to bottom out by year-end as these drivers register modest rebounds.”

For the office market tenants may have more space to shed, the report states. “Expect the vacancy rate to peak in the first half of 2011 and rents to bottom in the second half of 2011 followed by a multi-year return to equilibrium. Vacancy is likely to set a modern-day record by the end of 2010,” the report states.

Transaction volume will increase by 20 to 30 percent in 2010 as many building owners are forced to sell their properties, the Grubb & Ellis report says.

‘This is likely to be the start of a multi-year recapitalization process for commercial real estate where banks, CMBS servicers and other lenders finally write down and sell a steady river of distressed assets. Prices, already down 40 percent from their peaks, may decline another 10 percent as buyers finally get in the game.”

In the Milwaukee area, office space vacancy rates are at 20 percent, according to Grubb & Ellis. One of the few office tenants that have been expanding in the area are career colleges, which are booming during the recession, such as Bryant & Stratton and Kaplan University.

However more suburban office tenants are considering moving to downtown Milwaukee now that the Marquette Interchange project is complete and I-94 widening between Milwaukee and Illinois and the future Zoo Interchange project are expected to create headaches in the suburbs in upcoming years, said John Mazza, vice president and office broker for Brookfield-based Grubb & Ellis|Apex Commercial.

The Milwaukee area industrial market has a vacancy rate of 8.1 percent, down from 8.2 percent a year ago, according to the Grubb & Ellis report. In 2009 absorption was relatively flat at negative 43,000 square feet. New construction was limited to build-to-suit projects, the report said, as speculative development in the region came to a halt a couple of years ago.

“(Milwaukee area industrial space) vacancy and absorption will fluctuate very little in 2010,” the report said. “Building prices will fall as buyers continue to struggle to obtain financing, but begin trending in the positive in the second half of 2010.”

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