Rough waters ahead for CRE, analysts say

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About Conference Chatter Anecdotes, insight, observation and analysis direct from the conference circuit.

There was little disagreement when four economic analysts took center stage Nov. 5 during the Urban Land Institute's Fall Meeting and Urban Land Expo in San Francisco. Everyone agreed tough times are ahead for commercial real estate in 2010.

Or, as Kenneth Rosen, chairman of the Fisher Center for Real Estate and Urban Economics at the University of California, Berkeley, put it: 2010 will be "awful," and 2011 will be "bad." But Rosen and the other analysts saw some light on the horizon, especially for multifamily REITs.

The analysts said the combination of pent-up demand and pure demography will result in heady times for apartment owners in 2012 and 2013. With employment returning, household formations are expected to shoot up as previously unemployed 20-somethings move out of their parents' basements. Also, the peak of the "Echo Boom," or the children of the Baby Boomer generation, is expected to reach prime household-formation age around that time.

In an earlier presentation at the conference, one of the four not-so-dueling analysts, Raymond Torto, global chief economist for CB Richard Ellis, released projections on future vacancy for the office, industrial, multifamily and retail sectors:

* Office will peak at 18.6% vacancy in the 2011 first quarter, rising from its current level of 16.1%.

* Industrial will rise from its current vacancy rate of 13.5% to a peak of 15.6%, also in the 2011 first quarter.

* Multifamily housing will peak in the fourth quarter of this year at 8.1% vacancy.

* Retail's vacancy rate will rise to 12.9% in the 2010 fourth quarter from its current level of 11.7%.