"With a little bit of perspective, I find there is some encouraging news and some real opportunities," Leisch said to the crowd. "During the good times, it is easy to make money, although the money you make during good times is not significant. It's the very major shifts in the market in which fortunes are made, and we certainly are experiencing one of those major shifts."
Leisch said he has seen this cycle before in his professional life and expects to see it again. "The past 10 months have been quite mind-boggling, and doom and gloom appear to surround us," Leisch said. "Financial markets are in turmoil. Home prices and consumer confidence are down."
However, he said, this downturn is not as dire as some have suggested, not in line with comparisons to the Great Depression, when the Dow dropped 89% and unemployment reached 25%, as compared to the current 6.1% jobless rate. Leisch said he doesn't expect this cycle to reach the lows of other recent downturns, such as that in the early-'90s, when vacancy rates skyrocketed due to larger amounts of property on the market. "In contrast, in this cycle we are fortunate that we have good property performance fundamentals," he said. Leisch also cites the large amounts of equity still on the sidelines, equity at the property level, and the federal government's ability and willingness to act as other factors that protect this cycle from the extremes of previous downturns.
Leisch said those in the room should feel fortunate to be working within the Chicago market while waiting for the national economy to recover. He identified Chicago as one of the strongest markets in the country, thanks to its good demographics, superior transportation, good workforce, limited construction and above-average infrastructure.
However, he said several factors are playing into the contracting industry and economy on both a national and local level. Leisch suggested that though the country is not yet in a recession by technical definitions - but is likely to be by the end of Q4, with the expectations of a second consecutive quarter of negative GDP growth - the lack of consumer confidence has hurt the economy nonetheless. "Consumers believe we are in a recession," he said. "The slowdown has slowed the economy, so it's a self-fulfilling prophecy."
However, despite the recession looming on the horizon, Leisch said, he believes Q4 will mark the bottom, with recovery beginning in January 2009 and lasting 24 to 30 months. Leisch said he expects the market will be "back to normal" by 2011, but until then, the Chicago market can expect to see the loss of 15,000 to 30,000 more jobs each year through 2010 and more hits to occupancy and rental rates. In Q3 of this year, vacancy was around 9.6%, but Leisch said he expects it to increase in coming years to 13.9% downtown and 16.5% in the suburbs. With the increasing vacancy, Leisch foresees asking rents for office space falling about 3.5% annually in the Chicago CBD and 4% annually in the suburbs in both 2009 and 2010.
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