A look at the downtown Atlanta skyline from Interstates 75 and 85 South.

Grubb & Ellis Company released its 2010 Real Estate Forecast yesterday indicating that 2010 commercial real estate fundamentals will decline more slowly than in 2009. Most property types are expected to reach bottom near the end of the year and a slow recovery will begin starting in 2011.

Atlanta had incredible momentum going into the recession as one of the fastest-growing metropolitan areas this decade. Overbuilding and infrastructure challenges, however, may delay the region's recovery, particularly the office market.

"The Atlanta market grew so quickly and generated so much momentum when economic times were good that we filled the development pipeline to its brim, unknowingly setting us up for a hard fall when the national economy plummeted into a recession," said Steve Dils, executive vice president and managing director of Grubb & Ellis' Atlanta office. "Despite our challenges, I'm confident that Atlanta's overall growth trend and economic fundamentals position us well to bounce back once the national economy is back up and running."

Cushman & Wakefield reported last Friday that their compiled numbers for Atlanta's office market showed roughly 2.3 million square feet of negative overall absorption in 2009. Reflecting an economic climate in which unemployment rose to its highest level in 26 years, occupancy losses were focused most heavily in the Central Perimeter market where 1.3 million square feet of negative overall absorption was reported in 2009.

Leasing activity decreased by more than 20% from levels reported in 2008. Overall vacancy (direct and sublease) increased to 20.2%. The last time overall vacancy rose about 20% was in the first quarter of 2005. Sublease vacancies more than doubled from year-end 2008, their highest levels since 2004, at 3.5 million square feet. Central Perimeter, Northwest Atlanta, Georgia 400 and Midtown office markets reported the highest levels of sublease vacancies at year-end. However, sublease vacancies are still remaining below the peak levels reported in the previous recession when subleases totaled in 5.8 million square feet in excess. With the majority of the projects located in Buckhead and Midtown, developers in 2009 were able to complete 1.9 million square feet in six speculative office buildings. Space leased totals 14% at year end and 1.6 million square feet remained under construction and scheduled for completion in first quarter 2010. Overall asking rental rates also decreased slightly from year-end 2008 averaging at $21.32 per square foot.

Limited investment sales activity was reported in 2009 according to Cushman & Wakefield, with just less than 1.3 million square feet trading during the year. However, despite these obstacles, Grubb & Ellis ranks Atlanta among the top markets in the nation in terms of long-term investment potential according to their Investment Opportunity Monitor. As a  proprietary annual market ranking, the Investment Opportunity Monitor measures 60 office, 55 industrial, 53 retail and 56 apartment markets against 13-17 criteria important to the performance of real estate investments.

"The national economy has begun a slow and cautious recovery, but the labor market, which often lags the broader economy, will turn around only gradually with sustained improvement unlikely before the second half of 2010. Because commercial real estate lags the labor market, it still has a ways to go before reaching its own low point," said Bob Bach, senior vice president, chief economist of Grubb & Ellis. "The good news is that the freefall we saw in 2009 is over and the future is more certain, giving owners and users of real estate the confidence to begin making decisions again."