"While expectations are not particularly optimistic for a significant near-term rebound, Colliers expects that 2003 will produce more demand for commercial real estate than 2002" says Jeff Fredericks, managing partner at Colliers in San Jose. "How far and how fast the market bounces off the bottom is more difficult to gauge. But Colliers expects the bounce to be noticeable and that it will exceed expectations for a repeat of 2002, or worse yet, that a double-dip recession will be the impetus for an even-worse 2003," he says. A recent Colliers report revealed that total activity in 2002 was even less than what was recorded in 2001, and less than any year dating to 1990.
"Across all sectors combined, we are calling for increased activity levels in 2003," Fredericks adds. "Based on historical figures and current market forces, R&D and warehouse activity stand the greatest chance of posting increased absorption over 2002, and office and industrial activity are more likely to be mirror images, or slightly less than 2002."
Colliers believes that gross absorption here will be about 24 million-sf in 2003, a modest improvement over the 22.4 million-sf recorded in 2002.
"We should remember that 60 million sf represents an amount of space that we do not want to absorb." Fredericks says. "The one to two percent vacancy rates of two years ago were not healthy for Silicon Valley businesses, anymore than 20% availability is healthy for owners today."
Still, Colliers remains optimistic about the situation, saying that the task of absorbing space will begin in earnest in 2003, now that availability is near its peak. A modest increase in overall activity is expected, fueled by attractive rental rates on the real estate side and a likely increase in capital equipment purchases and IT investment on the part of Silicon Valley businesses.
"This Valley has shown that it can add 40 million sf of occupancy in a few short years, and 40 million sf of additional occupancy would reduce our availability rate to about 7% today, which may be slightly out of balance in the landlord's favor," Fredericks says. "The turnaround will indeed be slow, but it will finally get off the ground in 2003."
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