US office space market to face slow recovery in 2010
The US office space market won’t recover overnight – it’s going to be a long, slow process according to experts this week.
“2010 wont feel like a classic recovery, but it will certainly feel better than 2009,” said Bob Bach, SVP and Chief Economist at Grubb & Ellis. In fact, experts predict the market is going to get worse before it gets better. Jones Lang predict vacancies will soar to 19.5% in 2010 while Grubb & Ellis predict a peak of 18.7%. Nationally a continued lack of bank spending and customer demand has meant there’s little money for expansion or business growth. Falling rents have seen tenants have the upper hand in the current market.
Despite the forecast looking dismal, it’s not as bad as it was this time last year. Back in 2008 economists had no positive outlook for the future and estimated it would be years before the market was back on it’s way to a recovery.
Mr Bach said that some commercial projects are now finding funding – particularly build-to-suit projects in which a developer or builder already has a tenant in hand.
Grubb & Ellis predict local markets will stay flat in 2010 and will start to rebound in 2011 and 2012. However, they predict jobs lost during the recession won’t return until 2014. They believe the apartment market will recover first, with the office market being the last to pick up.
Currently leases are being signed 40% less than peak rates. Over $500 billion of commercial mortgages will mature annually in the next few years, putting pressure on banks to either roll over the loans or foreclose on properties.