Property Types Office
Oct 24, 2007
By: Eugene Gilligan, Senior Hotel Editor
A slowing economy should cool down the U.S. commercial real estate market in 2008, but the four main real estate sectors should remain relatively healthy next year, according to key Grubb & Ellis Co. executives, who offered their predictions for 2008 at a press conference in New York City this morning.
"We should see slower economic growth in 2008, but probably no recession," said Bob Bach (pictured), the company's senior vice president. He said his view is in tune with the majority of economists, who forecast that the economy will narrowly avoid a recession next year. Some ingredients that could trigger a recession do exist, such as poor investment decisions, Bach said, most prominently on the part of lenders who were previously very aggressive in their lending. He also noted that some cracks are beginning to be seen in consumer confidence. Bach said he believes that the economy should grow by 2 percent this year, and 1.8 percent next year.
The positive news is that office development has been under control, Bach said, so net office absorption should remain positive--about 48 million square feet in 2008, off by about 20 percent from 2007. He predicts office vacancy by the end of next year should be 13 percent, about the same level as this year. Rental rate growth in office properties nationwide should decelerate next year, rising from 0 to 5 percent. He named Portland, Ore., and Seattle as hot office markets, as well as San Francisco, while San Jose's office inventory has been strengthened by the tech revival. Bach also noted that office vacancy in Los Angeles County has continued to fall, and is now below 10 percent, but its neighboring office markets, such as Orange County, the Inland Empire and San Diego could feel some pain due to the housing slump.
Retail leasing rates should stabilize in 2008, said Michael Dee, Grubb & Ellis' senior vice president. While leasing at regional malls should continue to remain strong, some strip centers may see some increase in vacancy, Dee said. But retailers that are dependent on the housing sector, such as home furnishings stores, could see slowing sales, he said.
The industrial real estate sector should continue to be driven in large part by the import of consumer goods into the United States, mostly from China, while U.S. ports will continue to undergo infrastructure improvements to handle the increased cargo load and larger container ships that are coming online, said Tim Feemster, senior vice president. Shippers are continuing to build mammoth distribution facilities near ports--such as Houston and Savannah, Ga.--as the Port of Los Angeles Long Beach reaches capacity, and to hedge their bets to avoid the massive cargo backups that occurred during the 2002 work stoppage at the Port of Los Angeles Long Beach and other West Coast ports. He noted that the workers' contract expires in 2008.
Private investors in commercial real estate will likely remain active in 2008 because of their willingness to assume leasing risk on properties, to secure loans with lower loan-to- value ratios, and to utilize their relationships with local banks to get loans, said Mark Larson, Grubb & Ellis senior vice president.
By: Eugene Gilligan, Senior Hotel Editor
A slowing economy should cool down the U.S. commercial real estate market in 2008, but the four main real estate sectors should remain relatively healthy next year, according to key Grubb & Ellis Co. executives, who offered their predictions for 2008 at a press conference in New York City this morning."We should see slower economic growth in 2008, but probably no recession," said Bob Bach (pictured), the company's senior vice president. He said his view is in tune with the majority of economists, who forecast that the economy will narrowly avoid a recession next year. Some ingredients that could trigger a recession do exist, such as poor investment decisions, Bach said, most prominently on the part of lenders who were previously very aggressive in their lending. He also noted that some cracks are beginning to be seen in consumer confidence. Bach said he believes that the economy should grow by 2 percent this year, and 1.8 percent next year.
The positive news is that office development has been under control, Bach said, so net office absorption should remain positive--about 48 million square feet in 2008, off by about 20 percent from 2007. He predicts office vacancy by the end of next year should be 13 percent, about the same level as this year. Rental rate growth in office properties nationwide should decelerate next year, rising from 0 to 5 percent. He named Portland, Ore., and Seattle as hot office markets, as well as San Francisco, while San Jose's office inventory has been strengthened by the tech revival. Bach also noted that office vacancy in Los Angeles County has continued to fall, and is now below 10 percent, but its neighboring office markets, such as Orange County, the Inland Empire and San Diego could feel some pain due to the housing slump.
Retail leasing rates should stabilize in 2008, said Michael Dee, Grubb & Ellis' senior vice president. While leasing at regional malls should continue to remain strong, some strip centers may see some increase in vacancy, Dee said. But retailers that are dependent on the housing sector, such as home furnishings stores, could see slowing sales, he said.
The industrial real estate sector should continue to be driven in large part by the import of consumer goods into the United States, mostly from China, while U.S. ports will continue to undergo infrastructure improvements to handle the increased cargo load and larger container ships that are coming online, said Tim Feemster, senior vice president. Shippers are continuing to build mammoth distribution facilities near ports--such as Houston and Savannah, Ga.--as the Port of Los Angeles Long Beach reaches capacity, and to hedge their bets to avoid the massive cargo backups that occurred during the 2002 work stoppage at the Port of Los Angeles Long Beach and other West Coast ports. He noted that the workers' contract expires in 2008.
Private investors in commercial real estate will likely remain active in 2008 because of their willingness to assume leasing risk on properties, to secure loans with lower loan-to- value ratios, and to utilize their relationships with local banks to get loans, said Mark Larson, Grubb & Ellis senior vice president.
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