Commercial real estate outlook dampened.

With the exception of cash transactions, investment activity in commercial real estate sectors is nearly at a standstill, because commercial lending has essentially halted while job losses are curtailing the demand for space, according to the Chicago-based National Association of Realtors[R] (NAR).

Although access to residential mortgages has improved, the opposite is true for commercial loans, and there are "serious structural problems" in commercial lending, explained NAR Chief Economist Lawrence Yun.

"We need liquidity for commercial mortgage-backed securities not only to free the market, but also to roll over existing debt," said Yun. "At the same time, the loss of jobs has had a significant impact on the demand for commercial space."

Yun added that default rates on commercial real estate loans are very low by historical standards, but commercial defaults could deteriorate significantly without a properly structured stimulus that addresses liquidity for commercial mortgages.

NAR's 2009 forecast noted in the office market that rent is likely to contract in 2009 as erosion in the job market curtails demand for space. Vacancy rates for office properties are projected to increase to 16.4 percent in the third quarter of 2009 from 13.4 percent in the third quarter of this year.

Annual rent in the office sector is expected to slip 0.4 percent in 2008 and decline another 3.6 percent in 2009. In 57 markets NAR tracked, net absorption of office space--which includes the leasing of new space coming on the market as well as space in existing properties--is expected to total 12.3 million square feet in 2008 before contracting to a negative 63 million square feet in 2009, said NAR.

The industrial sector has been holding up "fairly well" based on the strength of exports, but the global economic slowdown will take a toll, said Yun.

Look for vacancy rates in the industrial sector to rise to 12.1 percent in the third quarter of 2009 from 10.7 percent in the third quarter of 2008. Annual rent is estimated to ease down 0.8 percent in 2008 and decline another 4 percent in 2009.

Net absorption of industrial space in 58 markets tracked should total a negative 57.2 million square feet in 2008 and a negative 134.9 million in 2009. Many obsolete structures remain on the market because much of the new construction has been built to suit specific needs, said NAR.

Declines in consumer spending are impacting the retail property sector. NAR predicts the retail vacancy rate will be 12.7 percent in the third quarter of 2009, up from 9.8 percent in the third quarter of 2008.

Average retail rent is expected to contract 2 percent in 2008 and fall another 7.3 percent in 2009. Net absorption of retail space in 53 tracked markets will likely shrink by 7.3 million square feet in 2008 and contract by another 35.7 million in 2009, said NAR.

The apartment rental market continued to benefit from weak home sales as multifamily vacancy rates are forecast at 5.8 percent in the third quarter of 2009, unchanged from the third quarter of 2008.

Average rent is projected to grow 2.9 percent in 2008 and 2.8 percent in 2009. Multifamily net absorption should be 24,400 units in 59 tracked metro areas in 2008 and 142,000 in 2009, said NAR.