Signs of a Slow Recovery Reflected in NAIOP Vital Signs Survey

November 17, 2009
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Despite lagging commercial real estate conditions and diminishing rents and values in every market sector, some signs of optimism emerge from developers, owners, and investors who expect slight GDP growth and an improvement in credit liquidity in 2010, according to the annual “Vital Signs” survey conducted by NAIOP, the Commercial Real Estate Development Association.

Respondents said that an increase in consumer and business confidence will likely result in an increase in household and corporate spending throughout 2010. Although the capital market disruption in fall 2008 produced destabilized industrial and office markets and new development in 2009 was sparse, 44 percent of respondents say that borrowing in 2010 will be somewhat more available with funds chiefly from banks, private investors, and insurance companies.

Government stimulus packages had little effect on the respondents’ businesses, with 71 percent feeling no impact and less than one-third reporting that they’d directly or indirectly participated. Only 8 percent reported participating directly with government programs, such as TALF and funded or expedited infrastructure projects.

Almost all the respondents saw office rents deteriorate in 2009; most expect rents to level off in 2010 with a few markets expecting a slight increase. Office vacancy rates are expected to continue to increase in 2010 and level off by the end of the year. Much of the increase in vacancy rates continues to be in markets heavily impacted by the residential meltdown, but financial, technology, and even energy centers are hardly unscathed.

Although a substantial amount of space was completed over the past 12 months, new development undertaken in 2009 was modest. This falls in line with rental rates deteriorating and no immediate improvement expected.