Leasing Market to be Under Downward Pressure in 2009

The labor market will likely continue to struggle in 2009, and as a result, tenant demand for commercial real estate may not “firm up” until 2010, according to Bob Bach, senior vice president & chief economist for Grubb & Ellis Co.The Labor Department said on Thursday that the number of initial job claims soared 58,000 in the week ended Dec. 6, to 573,000, a 26-year high, as companies slash jobs as part of their efforts to survive the economic turmoil. Meanwhile, the four-week moving average of jobless claims rose from 526,250 to 540,500.Job creation is a direct driver of demand for office space, and it plays a more supporting role in demand for apartments, shopping centers and industrial properties. The deteriorating labor market suggests that “the leasing market’s fundamentals are going to be under some downward pressure next year,” Bach told CPN.The recession has entered its twelfth month, longer than the 1990-1991 and 2001 recessions, which both lasted for eight months, according to Bach. He expects to see continued job losses through next year, but they are likely to be more intense during the first half of the year before beginning to subside during the second half of the year. “The downturn seems to be gaining speed,” he said. He added that the labor market is a lagging indicator and one of the last variables to really change direction. “For that reason, even if we see modest GDP growth in the second half of the year, the labor market, as the last economic indicator really to turn around, probably won’t until the end of the year,” Bob said.What is particularly worrisome to Bach is that economists have been frequently downgrading their forecasts since the middle of September. “I don’t know that we’ve really seen the worst of it yet,” he said. “I don’t think the economy’s really hit bottom or found the bottom.” He is, however, somewhat optimistic about 2010. “I’m hopeful that we’ll begin to see some modest job creation maybe as early as the first half of 2010.”