Downtown Forecast Sees Gloom and Recovery

LOS ANGELES-Speakers at a commercial real estate forecast presented recently at the Downtown Breakfast Club expect rising office vacancies and a slow recovery for retail, but the outlook for the multifamily sector is promising. Three veterans of the industry presented their outlooks on the downtown office leasing market, the retail outlook and the prospects for multifamily.

Steve Marcussen, Cushman & Wakefield executive director, told the Breakfast Club audience that, “The current climate of economic uncertainty, exacerbated by looming tax hikes and murky implications of new healthcare legislation for small business, have created a standstill in leasing.” Marcussen said that the verall vacancy rate is 16.5%, including a vacancy factor of 17.5 % for class A buildings, and those percentages are expected to rise.

James Rabe, senior vice president of real estate research firm Keyser Marston, delivered the outlook for retail. He said that retail activity in Downtown and the region will recover slowly from its current depressed levels. “It is likely to be three to six years before retail returns to its 2008 levels,” he said.

In the multifamily sector, H. Bruce Hanes, who has been involved in the sale of more than $ 4.5 billion of apartment houses over the past 40 years, said the outlook is quite promising over the next five years. “We see rents bottoming out in Los Angeles this year and relatively little new construction in the Los Angeles area. But for a variety of socioeconomic reasons, we are quite optimistic about the future,” said the CEO of Westlake Village-based Hanes Investment Realty. The less people see housing as an investment vehicle and the more they see it as shelter, the more they will gravitate toward apartment house living in urban areas, he predicted.

In his assessment of the office market, Marcussen said although the absorption rate just managed to eke into positive territory in the Central Business District in the first quarter, it has been negative for two years. Also, leasing activity is depressed because of the increasing trend of people working at home or on the roaddue to advances in computers and other technology. Marcussen also said that, if there are a significant number of defaults by landlords on loans scheduled to mature in the next two years, the situation could get worse. In the worst case scenario, he added, it could be 10 years before there is any new office building construction Downtown.