Commercial real estate looks better in 2002

Jennifer Robison

Thursday, Jan. 3, 2002 | 11:17 a.m.

Jennifer Robison

The local commercial real estate market slowed noticeably in 2001 as a national recession set in earlier in the year and September's terrorist attacks hurt the resort industry.

But commercial real estate analysts are predicting mostly positive times in 2002 -- for those who can brace for sustained slow activity in the first and second quarters and wait for better times in the year's second half.

The Valley's office market softened considerably in 2001, though it appeared to be poised for a renewal by year's end.

Data from the Restrepo Consulting Group, a real estate research firm, showed a yearlong rise in vacancy rates, which started the year at 8.2 percent and ended the year at 11.1 percent.

Brad Peterson, a senior vice president with CB Richard Ellis, said he expects that slide to continue into the first three months of 2002.

"We might see vacancy rates rise to the 16 percent range in the first quarter," he said. "Those rates should stabilize, though, and then we should see a downturn in vacancy in the third and fourth quarters" as the national and local economies begin to rebound.

The Restrepo report also said industrial vacancy levels began 2001 at 5.6 percent, and closed the year at 6.3 percent.

"It was a trying year," said Mel Koich, a senior vice president of Lee & Associates. "We did okay in 2001, though things slowed down considerably in the first quarter.

"We were starting to recover a bit, but we got to September and went into a tailspin. It's been a really trying year for just about every type of business, not just commercial real estate," he said. "But we're going to come out of it stronger. I think we'll start 2002 on a very positive note and just move forward. I don't see things going crazy, but I do think it will be a really consistent, steady year."

Vacancies also rose in the population-reliant retail sector.

Restrepo data show vacancy rates rising from 2.1 percent at the beginning of 2001 to 3.6 percent at the end of the year.

Vacancies will run especially high -- 4.6 percent -- in the power center submarket, the report said, since more than 3 million square feet of power center space is under construction at the same time the national and local economies are slowing.

Matt Bear, a principal with NewMarket Advisors, said he believes vacancy levels will drop by the end of the year.

The bulk of retail building locally will occur in the Northwest Town Center area and the South Eastern Avenue corridor, Bear said; in addition, the southwest area of the Valley may begin to see ramped up construction of neighborhood retail centers.

Some major national retailers are preparing to enter the market in the next year. Retailers planning to enter or expand in the market in the next four quarters include Kohl's Department Stores, Sears Millennium, the Great Indoors and Food-4-Less, the Restrepo report said.