Grubb & Ellis: Continued sluggish real estate recovery in 2012

Santa Ana, Calif. -- The struggling housing market, weak job growth and ongoing consumer deleveraging caused the retail market to lag other property sectors in 2011, according to Grubb & Ellis Co.’s 2012 National Real Estate Forecast, which predicts a year of slow but continued growth for all commercial real estate property sectors.

"Although a variety of economic and political factors, including continued high unemployment, an upcoming U.S. presidential election and the unresolved European sovereign debt crisis weigh on the minds of real estate owners, users and investors, we anticipate gradual improvement in leasing markets and a boost in investment sales volume," said Robert Bach, senior VP, chief economist. "This is based on an assumption of GDP growth in the range of 2.0% to 2.5% in 2012, still below the economy's long-term potential of around 3%, and an average of 125,000 net new payroll jobs per month."

In the retail sector, demand from mid-size tenants was limited and the majority of transactions were smaller deals in 2011, according to the forecast.  Neighborhood and community center vacancy rates were stable but not falling, while vacancies in regional malls inched up slightly. Regions scoring highest on the Momentum Index, which places them in the top quartile of markets analyzed, include Southern California and Northern California/Pacific Northwest.

The bottom quartile included the Mountain/Southwest region, where the housing bust was particularly severe, and the Great Lakes/Ohio Valley.

The majority of investment activity has been in larger, primary markets, while tertiary markets have seen little capital for deals. The results of the Investment Opportunity Monitor indicate that this trend will continue. Los Angeles topped the list, followed by Washington, D.C. (No. 2), Boston (No. 3), San Diego (No. 4), Seattle (No. 5), Portland, Ore. (No. 6), San Francisco (No. 7), Houston (No. 8), San Jose-Silicon Valley, Calif. (No. 9), and Austin, Texas (No. 10).

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