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Office & Industrial Construction Down but New Deliveries Will Still Raise Vacancy
(SANTA ANA, CA) -- Although the pace of new office and industrial construction in 2008 was down from preceding periods, deliveries this year and in 2010 will increase vacancy in both markets, estimates Bob Bach, senior vice president and chief economist at Grubb & Ellis Co.
Bach sees office vacancy rising to a national average of 16.5 percent from 14.8 percent at year-end 2008, and industrial vacancy moving to the 9.3-percent level from 8.8 percent.
Under construction is 80 million square feet of office space and 72 million square feet of industrial product.
"The disciplined addition of new space over the past several years should help the commercial real estate industry deal with the recession," Bach notes, but the vacancy factor will still be present.
"As a percentage of the existing inventory, neither the office nor industrial construction pipelines reached their previous peaks leading up to the recessions in 2001 and 1990-91," Bach notes.
"Nevertheless, new space deliveries in 2009 and 2010 will cause leasing market fundamentals to soften, even before negative absorption is factored into the equation."
He adds, 'Tenant downsizings are expected to generate significant negative absorption, which will raise vacancy rates above these levels before a market recovery can begin."
Bach sees office vacancy rising to a national average of 16.5 percent from 14.8 percent at year-end 2008, and industrial vacancy moving to the 9.3-percent level from 8.8 percent.
Under construction is 80 million square feet of office space and 72 million square feet of industrial product.
Robert Bach
"As a percentage of the existing inventory, neither the office nor industrial construction pipelines reached their previous peaks leading up to the recessions in 2001 and 1990-91," Bach notes.
"Nevertheless, new space deliveries in 2009 and 2010 will cause leasing market fundamentals to soften, even before negative absorption is factored into the equation."
He adds, 'Tenant downsizings are expected to generate significant negative absorption, which will raise vacancy rates above these levels before a market recovery can begin."
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