Seattle best market for commercial real estate
Seattle Daily Journal of Commerce, October 22, 2008
By Lynn Porter
Journal Real Estate Editor
Seattle will be the top commercial real estate investment market in the country in 2009, but will still see rising office vacancies and flat rents along with a dramatic decline in condo sales and presales.
That's according to the Emerging Trends in Real Estate 2009 report, which bases its forecasts on interviews with and surveys of 700 developers, brokers, investors, lenders and others in the industry. The report released Tuesday by the Urban Land Institute and PricewaterhouseCoopers sees 2009 as the worst year for commercial real estate since the 1991-1992 industry depression because of the weakening economy and credit markets meltdown. It predicts the commercial real estate market will flounder in 2010, and will see a slow recovery in 2011.
"It all depends on the economy," said ULI Senior Fellow Stephen Blank. "It's a question of how fast they can jumpstart the economy."
Nationally, values for commercial buildings could drop 15 percent to 20 percent from their mid-2006 peaks and many developers will be sidelined by their inability to get project financing and tenants.
Seattle has the best investments prospects, moving up from second place in 2008. It is followed by San Francisco, Washington, D.C., New York and Los Angeles. However, all those markets will see downturns from 2008.
Seattle ranks third for development opportunities in 2009, with San Francisco and New York first and second, and Washington D.C. and Austin, Texas, fourth and fifth.
In a "classic flight to quality" report respondents favor coastal global pathway cities for investment in 2009, and Seattle tops their list, the report said. A magnet for "brainpower industries," it is an important job incubator, has a diversified group of corporate giants and cutting-edge companies.
But with Washington Mutual's failure, Starbucks downsizing, 3.5 million square feet of new construction and "tepid" job growth there will be flat office rents and concessions, the report said.
Those surveyed and interviewed rate Seattle area apartments a strong buy in 2009 and expect rents to move up. They also feel that low retail vacancies will buffer shopping centers in any consumer pullback. And they rank the greater Seattle area as tops for industrial property buys because of its ports.
Blank and the report's author, Jonathan Miller, said that nationally, despite the housing market crash, commercial real estate remained unscathed in 2008. But in 2009 commercial mortgage foreclosures and delinquencies will rise, the report said. Additionally, over next four years billions of dollars of properties will need to get refinanced.
"Some owners will be drowning in debt as values decline," said Blank, noting there should be opportunities in properties where owners can't refinance.
Long-term owners should be able to ride out the storm, but "traders and speculators are just going to get creamed," Blank said.
Nationally, apartments should continue to do well as fewer people can buy.
Development will be stalled, said Blank, noting "developers might as well head for the golf course or the mountains ..."
When development picks up, the future is in mixed-use and infill projects as people seek greater convenience in urban cores, the report said.
