Economy will continue to weigh down the commercial real estate sector this year | Real Estate | PE.com | Southern California News | News for Inland So

Wednesday, January 6, 2010

By JACK KATZANEK

The Press-Enterprise

The economy will continue to weigh down the commercial real estate sector this year, but a company with a heavy presence in Inland Southern California believes the free-fall is probably over.

Grubb & Ellis Co., which offers leasing and investment services for commercial tenants and builders in Riverside and San Bernardino counties, is predicting demand for commercial space will be flat in 2010. The company's 2010 forecast suggests more declines this year, but also that a bottom is in sight.

The Inland economy did show some signs of stabilizing in November and December, but few are bullish about employers in the region adding significant numbers of new jobs in 2010. That means it is unlikely they will need additional office or warehouse space.

Job growth forecasts for the area vary, but the consensus suggests there will be little growth. Unemployment did decline in the two-county area in November, the most recent month for which there is data, and the region had some job growth in October and November.

That was among several indicators that signaled the recession ended in the second half of 2009. Grubb & Ellis' forecasters say that this means some fresh investment could enter the game in the form of bargain-hunters.

"Buyers with cash are well-positioned to acquire properties at a discounted rate," Mano Leventakis, managing director of the company's Inland Empire operation, said in a statement.

There are worries that a wave of foreclosures is coming in this sector in 2010, but Grubb & Ellis predicts this concern is probably "an exaggeration." The dollar value of outstanding commercial mortgages adds up just a fraction of the residential mortgages that led to the subprime meltdown.

Leventakis said that the gap in what investors are willing to pay for distressed properties and what the lenders holding the mortgages will sell for will narrow in the second half of the year. This will stave off many potential foreclosures.

Mary Sullivan, the former research director in Grubb & Ellis' Inland office and now a consultant, said there won't be a quick bounce for commercial real estate in the first half of this year.

"I don't think things will be substantially better by mid-year," Sullivan said. "But by the end of the year and into 2011 it will level out a little more."

Sullivan agrees that, nationally, the fears of a wave of foreclosures could be overstated, but it's a bigger concern for the Inland area because many tenants are not as well established as they are elsewhere. That could worry investors.

Another issue is the willingness of banks to back future investment.

"I think the financing issue is still going to be a major unknown for 2010," Sullivan said. "It affects the business side, but it also affects a tenant's ability to expand."