Carolyn Said, Chronicle Staff Writer
Friday, November 6, 2009
Shopping centers, office buildings, industrial spaces, hotels and apartments can expect a period of "enveloping gloom" from the recession and credit crunch, according to a report released on Thursday.
Values will plunge, vacancies will rise and rents will decrease across all types of commercial property before the market hits bottom in 2010, according to the "Emerging Trends in Real Estate" forecast from the Urban Land Institute and PricewaterhouseCoopers LLP.
Based on interviews with 900 industry leaders, including investors, developers and financiers, the report was released at an Urban Land Institute conference for developers, planners and other real estate professionals taking place this week at San Francisco's Moscone Center.
No quick recovery is in store, the report said. "2010 looks like an unavoidable bloodbath for a multitude of 'zombie' borrowers, investors and lenders," it said. "The shake-out period may extend several years as even some conservative owners with well-underwritten loans from the early 2000s see their equity destroyed."
One flicker of good news was that investors with cash to burn should find some exceptional bargains amid the carnage. Properties may lose 40 to 50 percent of the values they enjoyed at their peak in mid-2007, the report said.
Apartments are likely to be the first sector to recover in sync with the economy, as young people who were forced to move back in with their parents seek their own places as soon as they find jobs, the report said.
Retail is likely to undergo the most wrenching problems. While top-tier malls and infill shopping centers with grocery stores will still attract customers, many struggling malls in secondary markets "will be worthless soon," one person interviewed for the report said.
"It's triage time with retail," said Jonathan Miller, the report's author. "A lot of people will give up on the weaker malls."
Ground-up building is likely to enter suspended animation for the next few years. "Why build anything if you can buy existing real estate so cheaply?" said Stephen Blank, senior resident fellow for real estate finance at the Urban Land Institute.
The report also assessed the relative strength of core urban markets. Washington, D.C. - recession-proof because the federal government eschews layoffs - ranked No. 1 for expected resilience.
San Francisco came in second because of its "multifaceted economy, proximity to high-tech Silicon Valley, and history of bouncing back from corrections," as well as its links to other global capitals and its "brainpower jobs."
Although San Francisco has taken some hard hits in the past year, experts interviewed for the report "feel it will bounce back before other markets," Miller said.
E-mail Carolyn Said at email@example.com.