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Gloom Without Doom

Gloom Without Doom
Grubb & Ellis' annual forecast yesterday wasn't as bad as it might have been: Yes, the market has fallen precipitously, but it canrecover just as quickly. We went to Grubb's Avenue of the America's offices to hear predictions from the firm's top U.S. and New York metro execs, who believe nothing's overly disastrous.
Gloom Without Doom
New York prez David Arena (center, with research and Jersey gurusRichard Persichetti and Rick Marchisio) says if we learned anything from history, the Big Apple isn't in an apocalypse. Phew.This cycle will be shorter than past recessions because of labor demand and lack of supply. Over the next 24 months, asking rentswill decline 7-8% and vacancy will grow to 8.5-9%. Tenants will be this market's winners, especially those with rolling leases. Across the Hudson, Rick anticipates some more office sublease space andflat industrial activity, but don't expect anything catastrophic.Renewals in '10 will keep the "Sixth Borough" churning (but Long Island may have to fight you for that title).
Gloom Without Doom
National leaders Glen Esnard (cap markets president), Jack Van Berkel (COO), and chief economist Bob Bach join the previous three local leaders for our camera. This is Bob's third recession in his Grubb tenure, but the one that has left the most question marks. What surprises him most? The downturn's rapidity since Sept. 7, especially since the economy stayed fairly stable after credit markets seized up last year. Nationally, they see job creation as a lagging indicator, with commercial real estate lagging further; they think we may not see the bottom of the leasing market until mid-'10. However, there are bright spots: medical real estate holds strong;and oil prices and interest rates are low. Now, if the Feds can just get the stimulus package together.
Gloom Without Doom
On the investment side, Glen (with Bob) says sales are down 60%plus, but not pricing. With this volume of transactions, it's hard toprice the market, but he thinks cap rates will rise to a more historical 9%. The market won't be able to stabilize until we know where prices are, which he hopes for in the second half of '09.