Friday, January 8, 2010 | Modified: Sunday, January 10, 2010

Slow recovery forecast for Denver commercial real estate in 2010

Denver Business Journal - by Paula Moore

Grubb & Ellis Co. predicted Friday that the Denver area’s commercial real estate market will start a “slow recovery” in 2010, ahead of the national commercial market that’s expected to bounce back in 2011.

Based in Los Angeles, publicly traded Grubb & Ellis (NYSE: GBE) is one of the country’s — and metro Denver’s — largest commercial real estate brokerage firms.

While there will be leasing activity in the metro area this year, commercial property vacancy rates will likely stay flat because most tenants will move laterally to take advantage of attractive lease rates and landlord concessions, according to the G&E report.

The Denver-area real estate investment market is expected to remain generally flat in 2010, but buyers with cash are expected to purchase lower-priced properties, including distressed assets.

Metro Denver ranked 10th on G&E’s “Investment Opportunity Monitor” for 2010-2014, based on property, economic and demographic variables. Only Texas cities such as Houston and Austin; California markets like Los Angeles, San Francisco, San Diego and Orange County; Washington, D.C.; Portland, Ore.; and Raleigh-Durham, N.C., are expected to do better than the Denver area when it comes to commercial real estate investment.

“Leasing activity will certainly increase, and there will continue to be a large quantity of properties attractively priced for buyers with cash,” Mark Ballenger, executive vice president and managing director of G&E’s Denver operation, said in a statement.

Bob Back, G&E’s chief economist, thinks that while the national economy has started a “slow and cautious” recovery, the labor market won’t turn around until the second half of this year, since it often lags the broader economy.

“Because commercial real estate lags the labor market, [the national commercial real estate market] still has a ways to go before reaching its own low point,” Bach said in a statement.

Other high points of G&E’s Denver forecast:

• Most commercial properties sold this year will be “come in the form of note sales and other non-recorded transactions.”

• Highly leveraged, lender-held buildings will get new owners, removing a major impediment to the recovery of the real estate investment market.

• Many larger office-building tenants will try to capitalize on lower rents and concessions offered by landlords at Class A and B properties, causing Class C properties to struggle to keep tenants.

• Metro Denver’s industrial real estate market is expected to see “positive growth and activity in 2010” when it comes to leasing, with renewable energy companies likely being responsible for most of that activity.

• Retail leasing in the metro area could see a moderate increase in activity this year, with grocery-anchored shopping centers as well as urban sites staying “fairly stable.” Most of that activity will come from educational and professional service businesses, taking advantage of lower asking rents.

• Job growth will be key to improvement in the local apartment market. (Even though apartment properties include residences, they are considered commercial real estate because they’re largely owned by companies or investors who don’t live there.)