Foggy days in forecast

What's the outlook? - Experts have the jitters

Commercial real estate pundits have had it pretty easy for the past few years.

As buoyant annual forecasts celebrated the post-dot-bomb good times, they wondered not whether the market was going to improve, but how much better it would get.

Sure enough, job growth led to strong leasing, new development and record-high rents. Meanwhile, investors around the globe sank record amounts into Triangle offices, stores, apartments and warehouses. No tea leaves required.

The theme is different heading into 2008. Uncertainty about the national economy is limiting the expectations of some brokers, developers and investors as forecasters reach for Doppler radar.

"It is partly cloudy," said Brian Reece of Karnes Research, which tracks Triangle real estate trends. "But the sun continues to shine on our marketplace."

Tenant representatives say companies are more cautious about expansions and relocations.

Landlords, who dealt primarily with expanding companies in past years, are addressing the concerns of an increasing number of downsizing tenants.

And the credit crunch has made it more difficult for some investors to borrow money to finance developments and acquisitions.

"The first half of next year is going to be slower than the first half of this year," said Ed Fritsch, chief executive of Raleigh-based Highwoods Properties, one of the Triangle's biggest office landlords. "The biggest question mark is: Does it recover in the latter part of 2008 or 2009?"

There are those who think the Triangle's commercial real estate market will remain strong as companies continue to expand and move here. Last week, Optimal Technologies said it would move from Calgary, Alberta, to downtown Raleigh, bringing up to 500 employees.

"We're having the best year we ever had," said Rex Thomas, president of Raleigh real estate services firm Grubb & Ellis/ Thomas Linderman Graham. "I don't want to hear about any downturns, because I don't see it, and I don't feel it."

Thomas' firm completed about 400 transactions this year, 10 percent more than last year. He expects a strong 2008 but described the theme of his firm's 2008 forecast as "cautiously optimistic."

Thomas and other optimists blame news reports reflecting residential real estate busts in other parts of the country for souring confidence in Triangle, which has largely avoided such economic struggles.

"It impacts people's psyche," he said. "Buying power, leasing space. It quells optimism."

Indeed, the Urban Land Institute is bullish on Triangle housing prospects in its 2008 Emerging Trends in Real Estate forecast, themed "A Dose of Fear."

"Research Triangle high-tech businesses and local banks provide local muscle," it reads. "Home prices keep increasing into the mortgage market headwinds."

Those indicators aren't protected by the national housing morass. The Triangle risks a talent drought when prospective newcomers can't sell homes in other markets. When would-be employees are affected, companies' expansion plans can be stymied. Developers could be hit with vacancies.

"We can only swim against the current for so long," said Jessica Brock, a Spectrum Properties broker in Raleigh. "If things continue to go bad in other places, hopefully we'll be a little protected and it will be a blip for us instead of a downturn.

"But to think that we're going to continue to buck the national trend while everybody is going backwards is not realistic."

A recent Duke University-CFO Magazine survey of 573 chief financial officers found that pessimists outnumber optimists by an 8-to-1 margin. The survey's optimism index, initiated six years ago, hit a record low.

The Triangle labor force grew 1 percent in the year that ended Oct. 31, data show. That's down from an annual average of 3.5 percent over the previous three years.

New companies registered in Durham, Orange and Wake counties during the three months that ended Nov. 30 grew 4.5 percent over the same period last year, half the average annual rate during the previous four years.

Leasing activity, typically slow during the holidays, seems particularly sluggish. In recent years, brokers were confident that activity would pick up in the new year. Many lack that certainty.

"Corporate America is just sitting on their hands," said Brad Corsmeier, a Colliers Pinkard broker in Raleigh. "But there are still deals out there."