SANTA ANA, CA-The recovery of commercial real estate in 2012 will be strongest in high-tech cities and “gateway” communities, with Los Angeles as one the biggest investment magnet in both industrial and retail sectors, according to a new report from Grubb & Ellis.

Although the market remains vulnerable to a variety of economic and political factors, including high unemployment at home and economic turmoil in Europe, “we anticipate gradual improvement in leasing markets and a boost in investment sales volume," says Grubb & Ellis chief economist Robert Bach, the report author. He foresees GDP growth in the 2-2.5% range in the coming year, which is belong still below what he calls the economy's “long-term potential” of 3%. Bach also expects employment to rise to a net 125,000 payroll jobs per month.

Multi-housing tops the list of strong real estate sectors, followed by hospitality, industrial, retail and office. In the multi-family arena, the difficulty that many young people may have in qualifying for mortgages augurs well for the apartment industry. According to the report, the growth of the 18-to 34-year-old age group “ensure that this sector will continue to be one of the most popular and sought-after commercial real estate investments in 2012.”

The best multifamily markets, in descending order, are the San Jose-Silicon Valley, CA, New York City, Boston, San Francisco, Orange County, Los Angeles, San Diego, Oakland-East Bay in California, Portland, and Washington D.C.

Top office markets on Grubb & Ellis’ Momentum Index include Northern California/Pacific Northwest and Southern California. At the bottom were Great Lakes/Ohio Valley and the Southeast.

In general, the office market is firming up, with national vacancy rates averaging 15.7% by next December, according to the report. Office tenants are expected to absorb 52 million square feet nationally, while least 9 million square feet of new office space is expected this year.

Technology and biotech hubs offer the “strongest long-term opportunities,” for investors, according to Grubb & Ellis. The top six markets on the list are San Francisco, Seattle, Austin, Texas,  San Jose, San Diego and Orange County, CA. New York, which Grubb & Ellis cited last year's as the top-rated market, will finish ninth place in 2012, as the Eurozone crisis continues to shake the city's financial industry.

While declining to comment directly on the Grubb & Ellis report, which he had not read at press time, CBRE economist Art Jones says he sees broadly similar patterns in the office market comeback.

“In terms of 2012, is going to be a year of continued recovery, led by high tech cities and gateway markets,” says Jones, senior managing economist at CBRE Econometric Advisors in Boston.

The CBRE economist says he expects the highest rate of office rents to occur in San Francisoc, Austin, New York and Dallas. “One reason, he adds, is that the vacancies in those cities are nearing the historical trend levels that encourage landlords to push for higher rents,” he says.

Other highlights of the Grubb & Ellis report:

Demand for industrial real estate is expected to continue in 2012, but due to the uncertainty overseas and the sluggish domestic economy, the report expects the national market to absorb only 130 million square feet, or a 15 percent increase.

For investors, the top 10 prospects are “markets serving seaports or inland ports that benefit from growing international trade,” according to the report. Los Angeles, with the largest port complex in the nation, took the top spot, followed by Houston, Inland Empire, Dallas-Fort Worth, Chicago, Miami, Oakland-East Bay in California, Atlanta, Philadelphia/Central Penn, and Phoenix.

The retail sector continues to look less than robust, according to the report. The beleaguered housing market, weak job growth and tighter purse strings for consumers caused the retail market to lag in 2011. Retail growth markets were led by California, together with the Pacific Northwest.

The “wild card” for 2012, according to the Grubb & Ellis report, is the European debt crisis. If the Europeans are unable to solve their sovereign debt problems, investors may stay out of the market.  But if investors remain confident, “expect commercial real estate sales to rise 25%“ in the coming year, according to the report.