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Commercial real estate sales to decline this year

Grubb and Ellis business park sign.
Grubb and Ellis business park sign.vitalsignsusa

Grubb & Ellis Company, a leading real estate services and investment firm, released a report Jan. 4 that commercial real estate will continue with most property types reaching bottom within this year. However, the same report said that recovery is seen to perk up next year, the PR Newswires said in a statement.


According to Mr. Bob Back, chief economist of Grubb and Ellis, the national economy began a slow and cautious recovery, after the country experienced an economic doldrums. However, he believes that the economy is expected to make a turn around before the second half of this year. He pointed out that commercial real estate will lag behind in the labor market before it could  recover later.


Back adds: "The good news is that the freefall we saw in 2009 is over and the future is more certain, giving owners and users of real estate the confidence to begin making decisions again."


Despite the low levels of transactions in the investment market in 2009, it is expected to see some of these assets come to market this year which prompted an increase in the sales volume of between 20 to 30 percent over the 2009 levels,  a statement said.


"Many have called commercial real estate 'the next shoe to drop,' but that's really an exaggeration," said Bach. "It implies that commercial real estate could wreak damage on the financial system equivalent to the subprime residential mortgage losses, which is highly unlikely because the value of outstanding commercial mortgages is a fraction of the value of outstanding residential mortgages. Nevertheless, losses will mount over the next several years. If banks aren't lending because they're coping with losses in their real estate portfolios, this could impede the economic recovery."


The same report said that banks likely will begin writing off their losses on distressed assets in 2010. This means that the capital accumulating on the sidelines will start being deployed, and highly leveraged buildings, many without the capital necessary to attract tenants, will transfer to new ownership, removing what was a major impediment to recovery in the investment market.

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