Freefall in Commercial Real Estate Slowing, Occupancy Rates at Record Highs

A report from Grubb & Ellis, a leading commercial real estate brokerage and management company, was released to start the new year. The report is a candid appraisal of the commercial real estate market. The news is that 2009 was a brutal year for the commercial market and that 2010 will be a year of slowing down the pain before the healing can occur.

Commercial Real Estate Prices Still Dropping:

If you are looking to buy commercial properties at the bottom, the report says that we still have some time to come before we reach it. Anticipating another 10 to 20 percent drop in pricing this year before we see any stabilization is not the words of optimism, unless you are comparing it to lasts years free fall.

The investment market, which saw transaction volume maintain artificially low levels in 2009 as banks, CMBS servicers and other lenders delayed working through distressed assets, will start to see some of these assets finally come to market in 2010, prompting an increase in sales volume of 20 to 30 percent over 2009 levels. Prices, already down 40 percent from their peak in October 2007, may decline another 10 to 20 percent in order to meet buyers’ expectations.

Low Occupancy Rates Plague Office Space:

If you are looking to negotiate for office space, 2010 may be the year to try to get a long term deal. The market is at an all time low and landlords are getting scared. You should be able to get a good long term lease in this market as competition for tenants is going to be fierce.

The national office market’s vacancy rate is expected to reach 18.5 to 19 percent by the end of 2010, the highest on record since Grubb & Ellis began tracking the national market in 1986. Other leasing fundamentals are also expected to continue to deteriorate, albeit at a slower pace before reaching a growth point in 2011. The company expects the market to register an additional 25 million square feet of negative net absorption and rental rates to decline 2 percent in 2010, compared to 62 million square feet of negative net absorption and a 5-percent reduction in rental rates in 2009.