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Commercial Real Estate Awash in Landlord Incentives

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The commercial real estate sector, suffering from the impact of ongoing economic slowdown, is growing more lenient with landlord concessions -- such as allowing more time to make the rent 00 which is helping vacancy rates to level off. In the latest Commercial Real Estate Index, from the National Association of Realtors, reports that subleasing in the sector remains high. Lenders are increasingly allowing for longer time in an atmosphere of a few big name defaults. The Guardian is reporting that the Glazer family defaulted on four more of its mall properties. Vornado Realty Trust also had two loans linked to a mall in Washington DC fall into foreclosure, REO Insider reported yesterday. Commercial real estate development remains stagnant in all regions with low investment activity and 88% of respondents said it is virtually nonexistent in their markets. Acquisitions, on the other hand, are showing upticks in activity according to the report. "This is very much a tenant’s market, which is quite favorable for businesses that are considering expansion," said Lawrence Yun, NAR chief economist. "It’s also encouraging that there is a modest improvement in the sentiment of commercial real estate practitioners." Raymond Torto, commercial real estate economist at CB Richard Ellis tells HousingWire that, overall, the economy remains on the road to recovery despite a second half 2010 slowdown. "The odds that it will transition to a self-sustaining expansion by 2011 remain better than 50%," he said. "Still, conditions remain weak. The job market recovery in particular is fragile as job gains to date have not been enough to meaningfully draw down the unemployment rate, which is stubbornly elevated at 9.5% and well above that in large states — such as California, Florida, and Illinois -- struggling with foreclosures and fiscal deficits." Vacancy rates in the office sector, with high levels of available sublease space, are expected to increase from 16.7% in the second quarter of this year to 17% in the second quarter of 2011, and then ease later next year. Empty properties in the Industrial sector is also growing, though vacancy rates for retail remain largely flat. The apartment rental market (multifamily housing) is benefiting from modestly higher demand, the reports finds. Multifamily vacancy rates are likely to decline from 6% in the second quarter of this year to 5.6% in Q211. Write to Jacob Gaffney.

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