From a small northwestern observatory…

Marcus and Millichap just released their Office Markets Report and their Hospitality Report this week. I’ll comment on the former today, and the latter later.

To quote, they believe the recovery will be “…muted and choppy…”, which is a departure from prior recession recoveries. They note that in the second half of this year, the business sector will need to step up to the plate and replace the government as the primary driver of economic recovery. Is the business sector up to the challenge?

Specific to the office sector, the rise in unemployment really masked the overbuilding in the office sector. As a result, while the overall vacancy rate has not yet peaked, the rate of increase in vacancies has slowed and should turn around later this year, with gradual recovery in 2011. Above-average job growth in 2012 and 2013 should fuel the slow recovery in the office sector.

Office investment hit a near-standstill in 2009, but they now see it picking up somewhat. (At Greenfield, we’ve noted that there is a fair argument for bargain hunting, particularly among choice properties which are on the market.) However, credit markets are still tight, keeping a lid on investment activity.

For the full report — which runs 66 pages — you’ll need to visit the Marcus and Millichap website and “join” as a client.