More job losses could hammer US commercial property

By Ilaina Jonas

NEW YORK (Reuters) - Job losses hurt demand for office space, retail and hotel space, so if the United States lost more jobs in November, it could mean a hard knock for U.S. commercial property.

The U.S. Department of Labor Friday is due to release its monthly non-farm payrolls report at 0830 EST on Friday. Economists polled by Reuters anticipate that the economy lost another 340,000 jobs last month.

Jeffrey Havsy, global strategist at Property & Portfolio Research Inc (PPR), explained that employment drives demand for all commercial space.

U.S. commercial real estate, which includes office buildings, shopping centers, apartment buildings, hotels and warehouses, has been grappling with tight credit markets, and heightened pressure on rental and occupancy rates as job losses mount and the U.S. recession deepens .

So far this year the U.S. economy has shed 1.2 million jobs, with about 40 percent of them having been office workers.

Commenting on high number of lost office jobs, Ken McCarthy, an economist with real estate services company Cushman & Wakefield, said: "What this is telling us is what we're in is a white-collar recession."

The global financial crisis has cut into demand for office space, particularly in large markets. One of the hardest hit markets is expected to be Manhattan. With 395 million square feet of office space, this market is larger than Chicago, Washington, D.C., Boston and San Francisco combined and largely dependent upon the financial industry because it takes up large chunks of very pricey space.

As banks and investment firms have consolidated and laid off workers, they have given up space.

The Manhattan office vacancy rate climbed to 7.8 percent in

November from its lowest rate of 5.7 percent in December 2007, according to Cushman & Wakefield. From January through November, 8.7 million square feet became available for rent in Manhattan. Sublease space accounted for 4.3 million square feet, Cushman & Wakefield said.

The company is forecasting average Manhattan rent to decline between 10 and 20 percent by 2010, and between from 5 percent to 15 percent nationally.

In addition to financial institutions, retailers have had declines in sales as consumers curtailed spending and the prices of food and other essentials rose. More than 6,000 stores have closed year-to-date, and there have been many layoffs from stores and restaurants.

"Certainly, as the credit crises widened and the downturn in what was the financial economy spilled over into the real economy, we've now seen almost all sectors of employment impacted by this recession," said Michael Cohen, PPR senior research strategist.

PPR expects retail rents to be down 1 percent this year and 3.3 percent 2009.

Warehouse vacancy is expected to rise to 10.7 percent by year end and to 11.5 percent from 8.8 percent in December 2007, PPR said. Rents are expected to fall to $5.09 at the end of 2009 from $5.26 at the end of 2007.

PPR has forecast an average increase in apartment rents of 0.2 percent in 2008 compared to an increase of 4.8 percent in 2007 and a decline in average rent by 2.1 percent in 2009.

Because the values of buildings depend upon the rent they can generate, commercial real estate prices are expected to tumble.

PPR said overall U.S. real estate prices could fall about 20 percent from their peak in 2007 if the recession does not worsen. JPMorgan (JPM.N) has forecast a decline of 25 to 30 percent, depending upon the quality and location of individual properties.

(Reporting by Ilaina Jonas; Editing by Toni Reinhold)