Commercial real estate experts on Tuesday painted a bleak picture for industry activity in 2009, comparing the office and industrial markets to the volatile U.S. stock, bond and housing markets.
“There’s a whole minefield of issues out there,” Stephen Blank, senior resident fellow of the Washington-based Urban Land Institute, said during a media conference call.
“Many property owners are drowning in debt, lenders are not lending, and for many industry professionals, property incomes are declining,” Blank said. “There is an unprecedented avoidance of risk.”
David Baird, senior managing director of Cushman & Wakefield’s Baltimore office, agreed the commercial market slowed in 2008 and could struggle in 2009.
“The market has slowed in terms of leasing velocity, and investment sales volume has fallen precipitously,” Baird said. “While we think 2009 will be slow in terms of leasing activity, I agree with ULI that we’ll see a bottom in 2009 and a gradual, slow recovery in 2010.”
The Baltimore area’s office market saw a progressive softening in leasing in the third quarter of 2008, as demand declined and supply picked up, according to a quarterly report from Cushman & Wakefield. On the industrial side, rising fuel costs have put pressure on companies to locate closer to customers, opting for buildings that are smaller and closer in location than once popular mega-warehouses.
Baird pointed to market strengths in leasing in Downtown Baltimore, along with spot leasing related to Base Realignment and Closure in areas like Anne Arundel, Harford and Howard counties.
“Right now, we have a demand and a capital problem, not an oversupply problem,” Baird said.
Industry experts expect ongoing drops in property values, more foreclosures and delinquencies and “a limping economy that will continue to crimp property cash flows,” according to ULI’s “Emerging Trends in Real Estate 2009” report.
“The cyclical real estate markets always come back, and they will this time too, but not anytime soon,” said Tim Conlon, partner and U.S. real estate sector leader for PricewaterhouseCoopers. “Commercial real estate was the last to leave the party, will feel the pain in 2009 and may be the last to recover.”
VACANCY RATES BY PERCENT
Office Industrial
Anne Arundel County 15.9 7.9
Baltimore City 13.8 9.5
Baltimore County 14.2 13.5
Harford County 7.8 13.2
Howard County 17.8 17.2
Source: Cushman & Wakefield quarterly reports
WEB EXTRA
Click here to view ULI’s full report on emerging trends for 2009.
