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ATLANTA-The local commercial real estate market has deteriorated significantly over the past 12 to 18 months, and the trajectory is going to continue downwards for at least another two quarters before it begins to stabilize, market reports reveal. Although brokers don’t want to put a time on the expected turnaround, many are hoping for conditions to flatten by midyear, leading to a brighter 2010.

“It’s hard to predict any kind of rebound in the market until the job outlook begins to turn the other way,” Thomas Bogle, principal and managing director of Jones Lang LaSalle in Atlanta, tells GlobeSt.com. With a weak job market, demand for space is weakened and vacancies will be on the rise, which could put downward pressure on rates. “It’s also possible that rates can stay flat without a decrease, but that means competition for tenants will be in front end concessions and tenant allowances,” adds Clark Gore, JLL’s local market director.

With unemployment expected to increase into 2010, and an expected 3.5 million square feet of new product being completed, the office sector is especially poised to take a deeper dive in the first half of this year, according to Cushman & Wakefield. The upside is that not much of the new construction is taking place beyond Buckhead and Midtown, which should allow rents to stabilize, concessions to decrease and positive absorption to occur toward the end of the year, according to Lisa Dunavin, senior director with Cushman & Wakefield’s Atlanta office.

Retail will also see an increase in vacancy in 2009, with more store closings on the horizon for the beginning of this year. Rental rates are expected to continue to slide until an uptick in sales occurs and retailers feel the market has bottomed out, says Tony Cerniglia, vice president of retail services with CB Richard Ellis.

“Looking forward into the year, there will be pockets of activity and opportunities in proven areas where there are solid demographics,” Cerniglia tells GlobeSt.com. “It will be back to fundamentals, although we won’t see the volume of activity we saw in 2007 and early 2008. This year will be a year of stabilization that will pave the way for recovery in the later years.”

Brokers within the industrial market remain hopeful about the Atlanta region’s long-term prospects, but face a sobering reality that this year will see rising vacancy as companies “fine-tune” their supply chains, along with lower rates or increased concessions, Cushman forecasts. The sector will also continue to see short-term renewals until the market stabilizes, says CBRE’s senior vice president Wit Truitt. “When the market starts turning, in the third or fourth quarter, we will start to see pent-up demand, which will accelerate leasing activity,” he adds. The good news is that both state and local incentives should be plentiful for companies choosing to move to new areas in the region, Truitt reports.

Before the overall market can see some positive numbers, banks will need to resume lending and investors will have to see the results of proposed government aid. “I don’t think anyone really understands the impact of the bailouts and the extent to which that will draft some energy into the marketplace,” says JLL’s Gore. “There’s a significant amount of capital coming into the system that will ultimately have an impact on the recovery.”

Atlanta is expected to rebound earlier than other US markets based on its history, local experts agree. “During the first decade of this century, Atlanta has continued to grow dramatically and continues to be among the fastest-growing large metro areas in the country and the number-one city for young college professionals,” said Richard Bowers, president and CEO of Richard Bowers & Co. The city that local experts say drives business throughout the Southeast will be at the forefront of recovery.

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