SANTA ANA, Calif., Jan. 5 /PRNewswire-FirstCall/ -- Grubb & Ellis Company
(NYSE: GBE), a leading real estate services and investment firm, today
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," said
Robert Bach, senior vice president, chief economist of Grubb & Ellis. "We
expect total payroll job losses in the range of 1 to 2 million in 2009 on top
of the 2+ million in 2008. GDP is likely to shrink by 1 percent in 2009,
compared with growth of 1.3 percent and 2 percent in 2008 and 2007,
respectively."
The investment market, which saw transaction volume plummet in 2008 as the
financial markets collapsed and the credit markets froze, is expected to see a
15 percent 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. Loan delinquencies and foreclosures will increase
with more properties returning to lenders, who will be anxious to sell them.
Debt capital will remain expensive and tight in 2009, but more of it will be
available than in 2008, and there will be a slow increase in equity capital
flowing into the market from private, institutional and offshore investors
waiting on the sidelines. The coming year should be more active as the gap
between buyers and sellers gradually narrows, with sellers making up most of
that difference.
Debt will be the hot investment type in 2009. Investments could be made in
CMBS, collateralized debt obligations or funds investing in these assets. Or
debt investments could be made at the property level with owners seeking to
refinance their properties. More equity investments will be made as well in
2009 as investors holding an estimated $300 to $400 billion in institutional,
private and offshore equity begin to deploy their capital in response to
falling prices.
The outlook is equally challenging for global markets, both developed and
emerging. The previous contention that emerging markets would largely escape
the financial crises in North America and Europe looks to be overly
optimistic. This will not be an ordinary downturn, but rather a structural
correction in global capital markets that will impact every sector of the
economy and real estate market.
One benefit of the global market correction has been the rapid evaporation
of inflationary pressures in most key economies. The decline in inflation has
left governments less reticent in using interest rates as a weapon in the
battle to stave off sharp economic and commercial decline.
Office Tenants Will Have the Upper Hand in 2009
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 percent. Tenants will have greater negotiating
leverage in 2009 with concession packages becoming more generous as the year
progresses. 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 percent 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," said Bach. "Government and health care will be
among the few sectors with growing demand for office space."
In this difficult market, Washington, D.C. should be at the top of office
investors' buy list, according to Grubb & Ellis' Investment Opportunity
Monitor, a proprietary market ranking in which Grubb & Ellis annually measures
60 office, 53 retail, 56 apartment and 55 industrial markets against 13 to 17
criteria important to the performance of real estate investments. Washington,
D.C., is the one market that will benefit from the credit crisis as the
government expands to implement its economic recovery plan.
Following Washington, D.C., on the top 10 list are Portland, Ore.; Los
Angeles; San Francisco; Austin, Texas; Dallas-Fort Worth; Houston;
Raleigh-Durham, N.C.; Boston; and Oakland, Calif. The Texas markets offer
strong population growth, while the others offer strong population growth as
well as natural barriers to entry.
Industrial Users Strive to Reduce Costs
Businesses look at industrial space as a productivity enhancer, an
integral part of their supply chain strategies. Their relentless quest for
cost-saving efficiencies should sustain demand for industrial space in 2009,
despite the weak economy. However, supply is expected to outpace demand with
absorption dipping into the red and the vacancy rate rising by 60 basis points
to end the year at 9.4 percent as the construction pipeline delivers space
still underway.
"The industrial market will recover more quickly than the office market
because the construction pipeline is set to thin out sooner," said Bach.
For the third consecutive year, the logistics business is driving demand
for space in Grubb & Ellis' Investment Opportunity Monitor's 2009 rankings.
Los Angeles retained the top spot on the list, with its proximity to the
busiest ports in the U.S., negligible vacant space and little developable
land. Also making the list were other cities with nearby port facilities
including Houston (No. 2), Oakland, Calif., and Seattle (tied for No. 4),
Miami (No. 8), Portland, Ore. (No. 9) and New Jersey (No. 10). Inland
distributions hubs Atlanta (No. 3), Dallas (No. 6) and Chicago (No. 7) rounded
out the list.
Will Consumer Spending Rebound in 2009?
Consumer spending hit a 28-year low in 2008 with retailers in the
crosshairs of the downturn. Grocery store-anchored centers in mature trade
areas will hold their ground in 2009, while centers on the urban fringe, where
housing construction has stalled will suffer. Retailers will be even more
conservative with their expansion plans in 2009, with more store closings and
fewer openings. Expect higher vacancies and softer rental rates by year-end.
"Value retailers are garnering the majority of consumers' dollars in this
challenging economic climate," said Bach. "Even the luxury retailers, which
are usually immune to downturns, are feeling the pain."
According to Grubb & Ellis' Investment Opportunity Monitor, no retail
market will escape the effects of the recession entirely, but some offer more
protection due to factors such as strong population growth, a high median
income and/or limited land for further development. Los Angeles topped the
list for retail investment followed by Washington, D.C. California had an
additional three cities in the top 10 with Orange County (No. 6), San
Francisco (No. 7) and San Diego (No. 9). Texas appeared three times with
Houston (No. 3), Dallas (No. 4) and Austin, Texas (No. 8). Also making the
list were Atlanta (No. 5) and Portland, Ore. (No. 10).
Multi Housing Will See Vacancy Rising as Well
The housing slump and recession have produced countervailing forces that
will both help and hurt the multifamily market in 2009. Apartments are seeing
some new renters who have lost their homes to foreclosure, while landlords are
able to maintain existing renters who are waiting for prices and mortgage
rates to fall further. However, new graduates who can't find jobs are doubling
up with a roommate or moving in with a relative to conserve cash. At the same
time, the apartment market faces competition from an increasing supply of
unsold condos and foreclosed homes returning to the market as rentals. The
negative forces are expected to have a slight edge in 2009 resulting in slowly
rising vacancies for the multi housing market this year.
Of the top 10 apartment markets in Grubb & Ellis' Investment Opportunity
Monitor, seven are on the West Coast and three are on the East Coast. All
offer barriers to entry, good economic prospects and high home prices. Los
Angeles ranks first followed by San Francisco; Orange County and Oakland,
Calif.; Washington D.C.; San Diego; New York City; San Jose, Calif.; Long
Island, N.Y.; and Portland, Ore.
Editor's Note: The complete Grubb & Ellis Global Forecast and regional
forecasts are available on the Grubb & Ellis Company Web site:
http://www.grubb-ellis.com.
About Grubb & Ellis
Grubb & Ellis Company (NYSE: GBE) is one of the largest and most respected
commercial real estate services and investment companies. With more than 130
owned and affiliate offices worldwide, Grubb & Ellis offers property owners,
corporate occupants and investors comprehensive integrated real estate
solutions, including transaction, management, consulting and investment
advisory services supported by proprietary market research and extensive local
market expertise.
Grubb & Ellis and its subsidiaries are leading sponsors of real estate
investment programs that provide individuals and institutions the opportunity
to invest in a broad range of real estate investment vehicles, including
tax-deferred 1031 tenant-in-common (TIC) exchanges; public non-traded real
estate investment trusts (REITs) and real estate investment funds. As of
September 30, 2008, more than $3.8 billion in investor equity has been raised
for these investment programs. The company and its subsidiaries currently
manage a growing portfolio of more than 225 million square feet of real
estate. In 2007, Grubb & Ellis was selected from among 15,000 vendors as
Microsoft Corporation's Vendor of the Year. For more information regarding
Grubb & Ellis Company, please visit http://www.grubb-ellis.com.
GRUBB & ELLIS INVESTMENT OPPORTUNITY MONITOR
U.S. OFFICE MARKET STRENGTH FORECAST
Top 10 Markets 2009 - 2013*
United States Overall Score* Rank
Washington, D.C. 74.5 1
Portland, Ore. 68.4 2
Los Angeles County, Calif. 68.0 3
San Francisco 66.5 4
Austin, Texas 65.1 5
Dallas 63.4 6
Houston 62.2 7
Raleigh-Durham, N.C. 61.5 8
Boston 59.9 9
Oakland/East Bay, Calif. 57.1 10
*Markets were ranked from 0 to 100 against 13 property, economic and
demographic variables.
U.S. INDUSTRIAL MARKET STRENGTH FORECAST
Top 10 Markets 2009 - 2013*
United States Overall Score* Rank
Los Angeles 78.7 1
Houston 75.7 2
Atlanta 67.1 3
Oakland/East Bay, Calif. 65.8 4 (tie)
Seattle 65.8 4 (tie)
Dallas 62.6 6
Chicago 60.1 7
Miami 56.7 8
Portland, Ore. 54.9 9
New Jersey, No. and Central 54.2 10
*Markets were ranked from 0 to 100 against 14 property, economic and
demographic variables.
U.S. RETAIL MARKET STRENGTH FORECAST
Top 10 Markets 2009 - 2013*
United States Overall Score* Rank
Los Angeles County, Calif. 73.8 1
Washington, D.C 72.7 2
Houston 69.7 3
Dallas 66.0 4
Atlanta 63.9 5
Orange County, Calif. 61.2 6
San Francisco 61.1 7
Austin, Texas 59.2 8
San Diego 57.5 9
Portland, Ore. 56.1 10
*Markets were ranked from 0 to 100 against 17 property, economic and
demographic variables.
U.S. MULTI HOUSING MARKET STRENGTH FORECAST
Top 10 Markets 2009 - 2013*
United States Overall Score* Rank
Los Angeles 63.9 1
San Francisco 61.2 2
Orange County, Calif. 57.9 3
Oakland/East Bay, Calif. 55.9 4
Washington, D.C. 55.7 5
San Diego 55.1 6
New York City 53.3 7
San Jose, Calif. 51.8 8
Long Island, N.Y. 49.5 9 (tie)
Portland, Ore. 49.5 9 (tie)
*Markets were ranked from 0 to 100 against 15 property, economic and
demographic variables.
