Grubb & Ellis Commercial Real Estate Forecast

The outlook for commercial real estate in 2012 is sluggish, with only a few areas such as multifamily housing and industrial space expected to experience notable growth in the new year, commercial real estate services firm Grubb & Ellis Co. (GBE: 0.125 0.00%) said Tuesday.

Robert Bach, senior vice president and chief economist with Santa Ana, Calif.-based firm, said the economy will face numerous headwinds, including political factors and the eurozone crisis.

The firm forecasts 2012 GDP growth of 2% to 2.5%, which is below the preferred 3% range.

As for how all of this all will effect the commercial real estate market is contingent on what type of real estate is analyzed and the trajectory of the economy over the course of the next year.

The market for office space is expected to remain largely dependent on the growth of the overall economy, Grubb & Ellis said.

This sector experienced a more accelerated recovery in 2011 than others, but the “flight to quality” remains in most markets with tenants running for good deals in the prime locations.

Grubb & Ellis concluded that overall “the outlook for the office market is stronger for 2012 with an expected national vacancy of 15.7% by year-end. Net absorption is projected to reach 52 million square feet and new deliveries will be minimal at 9 million square feet.”

Meanwhile, the industrial sector is expected to experience increased demand in 2012 with total net absorption of 110 million square feet, the firm said.

While multifamily housing is expected to have a second year of strong performances due to increased demand from consumers aged 18 to 34, retail activity is expected to sag with consumers still working their way through debt, lessening demand at retail outlets.

Grubb & Ellis says demand from mid-size retail tenants was limited in 2011, while neighborhood and community center vacancy rates remained stable. Vacancies at regional malls were up.

The new year is starting with reports of Sears closing up to 120 Sears and Kmart locations nationwide, a move that frightened CMBS retail investors last week until they obtained a deeper look at the locations impacted.

“Very little retail construction is occurring nationally,” Grubb & Ellis added. “This combined with moderate job growth and rising retail sales should help sustain a recovery in 2012, although velocity will not be strong enough to push lease rates higher.” (credit to K, Panchuk)


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