Grubb & Ellis Predicts CRE Challenges In 2009

Grubb & Ellis Co., a real estate services and investment firm, has released its 2009 Global Real Estate Forecast, which indicates that 2009 will be a challenging year for commercial real estate, with the economy starting the year 13 months into what may become the longest recession since the 1930s.

‘The economy will struggle in 2009, which will dampen demand for all product types, resulting in negative absorption and increased vacancy,’ says Robert Bach, senior vice president and chief economist of Grubb & Ellis. ‘We expect total payroll job losses in the range of 1 [million] to 2 million in 2009, on top of the 2 million-plus in 2008. GDP is likely to shrink by 1% in 2009, compared with growth of 1.3% and 2% in 2008 and 2007, respectively.’

The investment market is expected to see a 15% increase in sales volume in 2009 as distressed properties are brought to market, particularly those acquired in the past couple of years with floating-rate debt, according to Grubb & Ellis.

The office construction pipeline contained 90 million square feet at year-end 2008, the lion's share of which will be delivered in 2009. This, combined with a projected 45 million square feet of negative absorption – including a big jump in sublease space – will push vacancy up by two percentage points to end 2009 at 16.5%, the firm projects. Grubb & Ellis says the growing inventory of sublease space will put downward pressure on asking rental rates for direct lease space, which are expected to decline in the range of 4% to 5% for both Class A and B space by year-end.

‘Employment growth drives demand for office space, and the labor market will be shrinking in 2009,’ says Bach. ‘Government and healthcare will be among the few sectors with growing demand for office space.’

Grubb & Ellis' forecast is available on its Web site,

SOURCE: Grubb & Ellis


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