NEW YORK CITY-Of the four major commercial real estate sectors, office will take the longest to recover, according to a media briefing by Grubb & Ellis executives forecasting next year's market. However, the local office market will fare much better than the national average.

Office will be the last to recover because "job creation is slow," said Robert Bach, Grubb's senior vice president and chief economist. "Once companies begin to grow again, they'll need to hire," he added, saying that he does not expect a double-dip recession.

But there is progress on the job front. Bach predicted that about 125,000 jobs will be created per month next year, followed by 150,000 in 2012. Those figures are a significant improvement from the 87,000 new ones a month this year.

Rental rates in the national class A office sector are flat this year, and Bach sees them rising 0.4% next year and 1.4% in 2012. The areas with the highest potential for increased rental rates are, in order, San Francisco; Orange County, CA; and Phoenix.

In the case of Manhattan, things are a bit brighter. Rental rates took a big hit in late 2008, when they plummeted to $58 per square foot from $80 in 2007, but they have already crept up to $62. We will see a return to those 2007 figures in 2014, predicted Joseph Swingle, executive vice president and managing director.

"Leasing activity is up here in the city," he said. "It feels much better than it did this time last year." Swingle also revealed that there are about 12 buildings with sales per square foot in excess of $100. Additionally, industries expanding in the city include informational and professional services, which are picking up the slack for many of the businesses in the financial sector that vacated space during the recession.

On the lending front, life companies are starting to ramp up their activity, said Jeffrey Majewski, executive managing director of debt and equity finance. They are the third-most active lenders now behind Fannie Mae and Freddie Mac and banks, he said.

Additionally, CMBS should come back in a big way next year. CMBS loans should increase three to four times in 2011 from this year, hitting $30 billion to $45 billion. Overall, the amount of capital available next year is forecast to come in between $100 billion and $150 billion.

One trouble spot is the $1.4 trillion on commercial real estate loans that are due over the next four years. One third of those could be "underwater" properties where the loan is worth more than the asset, said Ed Alegre, executive managing director of Grubb & Ellis Landauer. He also said that the industry will see more banks writing down loans, workouts and deleveraging.

Meanwhile, asset values are still down 40% from their peaks, and while class A and distressed properties are changing hands, middle-market deals are pretty stagnant. "There is a significant ask-bid gap in the market, and that is impacting the number of transactions," Alegre said.