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Commercial real estate forecast: rocky

  • The Wichita Eagle
  • Published Thursday, Dec. 3, 2009, at 12:06 a.m.
  • Updated Thursday, Dec. 3, 2009, at 1:03 p.m.

Next year is going to be a tough one for commercial real estate, locally and nationally.

The business jet downturn will continue to weigh heavily on Wichita's commercial market, a local economist and a National Association of Realtors economist said this week.

"In our market, we've got two things affecting commercial real estate and one is just fundamentals," said Stan Longhofer, director of Wichita State's Center for Real Estate.

"Businesses need expansion for space to have leasing activity go up and credit has to be more available to see investment. Until things normalize, that's the way things will be."

NAR economist George Ratiu said that group's 2010 outlook is "a little bit clouded."

"In large part, while we are expecting some improvement in the multifamily sector, the other sectors will maintain a negative outlook."

The outlook darkens in areas where manufacturing — in Wichita's case, aviation — has taken a hit in the national economic downturn.

"For a lot of markets, the outlook is bleaker than the national outlook, particularly if the local economy is negatively impacting the market," Ratiu said. "There are instances where a shrinking manufacturing base is cutting demand for both traditional industrial space and retail."

With employment forecast to remain flat through 2010, Longhofer said the next year locally looks rough for commercial real estate.

"It's employment within a given sector that drives demand for real estate," he said.

"So based on the forecasts for 2010, it will be a hard year; 2011 is the year when we'll start to see recovery."

In a report released last month, the NAR called the commercial industry's forecast "uncertain," plagued by increasing vacancy rates in the office, industrial and retail markets.

Nationally, job losses will dampen the office market with vacancy rates rising 2.4 percent, the NAR forecasts.

Annual office rents are plummeting, down 12.1 percent this year and forecast to drop another 8.5 percent in 2010.

Vacancy rates are growing more slowly in the industrial market, forecast to rise 1.9 percent next year, but rental rates also are suffering, down 10.8 percent this year and forecast to fall another 11.5 percent in 2010.

Retail vacancies will slowly increase over the next year, up 0.8 percent, the NAR predicts.

"Near term, retail is the most hopeful commercial sector, with an expected rise in commercial confidence, resulting from a restoration of housing wealth as home prices stabilize and begin to rise around the spring of next year," Lawrence Yun, NAR's chief economist, said in a statement.

Reach Bill Wilson at 316-268-6290 or bwilson@wichitaeagle.com.

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