Grubb & Ellis Reports Office Markets Down in First Quarter

Grubb & Ellis Co.’s first quarter survey shows that office markets seem to have been affected by the deteriorating economy, as the overall vacancy rate rose to 13.6 percent. This is a sharp increase of 60 basis points from the 13.0 percent rate that had held steady in the prior three quarters. Of the 57 markets tracked by Grubb & Ellis, first quarter vacancy rose in 42 markets and fell in 15.Net absorption totaled 1.8 million square feet, the lowest since the second quarter of 2003. 15.1 million square feet of new space was completed during the quarter.Grubb & Ellis, calling its forecast, “middle of the road,” predicts that if the economy loses an additional 2 million jobs that would translate into negative absorption of around 100 million square feet of office space. Concurrent with that drop in demand will be the delivery of 94 million square feet still under construction.Vacancy is expected to peak at 18 percent by the end of 2009, very similar to the last two downturns–17.9 percent in the first quarter of 2004 and 18.0 percent in the third quarter of 1991.Grubb & Ellis expects more properties to come on the market in 2008, including distressed sales, which will create the best buying opportunity in years for investors with cash to spend. Tenants also will see the best opportunities in years.CPN also recently reported that the capital markets are reflecting conditions with reduced leveraged rates and a slowed pace of closing deals. Deals made in the last two years with future workouts are facing difficulty refinancing the short-term loans.