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HOUSTON-Next year will be better and so will the years that follow as Houston edges closer to the start of a seven-year cycle for a significantly stronger commercial real estate market.

Gregory H. Leisch, CEO of Alexandria, VA-based Delta Associates, told 200 area brokers at a forecast session that Houston’s economic downturn has been “a very shallow recession by national standards.” Leisch was the featured speaker at Transwestern Commercial Services’ unveiling of its third quarter numbers held at the Houstonian Hotel in the Galleria.

Leisch’s research shows the Houston market will add 36,600 jobs annually from 2004 through 2006, the final hurdle to clear for a return to the norm of 45,000 jobs. Through 2010, the region should meet or exceed its average job growth. Between 2002 and 2003, the region lost 18,000 jobs in comparison to 45,000 created each year from 1988 through 2001. Still, it’s better than Dallas, which was down 80,000 jobs in 2002-03 and San Francisco, down 277,000, he says.

Leisch says Houston’s office market, the nation’s ninth largest, has a 15.7% vacancy; the national average is 16.3%. He says the vacancy will level off over the next six to 18 months except for the downtown, which naturally will recover considerably slower due to large vats of empty office space. Citywide, the office market will have “significant improvement” in 2005 and 2006, he says.

The suburban markets will be the only winners in the rent game, with increases beginning to surface in 2005. Leisch expects the CBD and West Loop rents will soften over the next two years.

Ranking ninth as well in the US industrial market standings, Houston’s 385-million-sf inventory receded by 282,000 sf in the third quarter although the year-to-date tabulation is up to 344,000 sf of positive absorption. In comparison, 2002′s end of the year posted 1.5 million sf to the red.

The industrial sector’s 9.7% vacancy will hold relatively steady for the next six months and then begin to dwindle. Leisch says there is less than one million sf under construction or the equivalent of a month’s inventory. He says the delivery impact will be just 0.2%. He predicts industrial rent will rise modestly, most likely less than 1% next year.

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