How high, how long? Commercial real estate vacancies expected to stay high through 2010
While the housing market could hit bottom this year, commercial real estate is expected to have a bleak 2010 no thanks to high vacancy rates and tight lending, industry insiders said Wednesday at the Builders Association of Northern Nevada annual forecast in Reno.
Tim Ruffin, the senior vice president of Colliers International, told a packed ballroom at the Atlantis Casino Resort Spa that the earliest the commercial real estate market could see a recovery is in the third quarter for industrial real estate and the fourth quarter for office and retail space. Meanwhile, rental and vacancy rates will remain flat this year.
“Flat, of course,” he said, “is the new up.”
In 2009, vacancy rates grew to 21 percent for office space, totaling 1.4 million square feet, which is more than double what a balanced market can support at 677,128 square feet, Ruffin said.
All that vacant office space could take about four or more years to absorb if it is bought at an average rate of 191,000 square feet per year, but that isn’t likely to start in 2010, Ruffin said.
“We didn’t overbuild,” he said. “What we did do is we built to the demand that was out there and unfortunately that demand evaporated.”
Home prices will bottom out in 2010, said Mark Krueger, the managing director and senior vice president of the land division at Grubb Ellis.
“But how long will we stay at the bottom might be a whole other question for next year,” he said.
New home sales are expected to increase to 850 in 2010, up from 762 in 2009, both down from 1,341 in 2008, Krueger said.
Ken Amundson, president of the Reno/Sparks Association of Realtors, home sales have been boosted by the federal home buyer tax credit and low interest rates, adding “prices have fallen, but have been stable for seven months.”
Amundson said the housing inventory has also fallen from a 10 month supply in December 2008 to a six month supply in December 2009.
Elliot Eisenberg, the senior economist at the National Association of Home Builders, said the nation has seen the worst of the economic woes, but more financial pain is likely to continue throughout 2010 especially in states that experienced the worst of the housing crisis, including Nevada.
But, “like wars and epidemics, this will end,” he said.