by David Winzelberg
Dolan Media Newswires

LONG ISLAND, NY — Commercial real estate won’t make a comeback for another year, according to a report from one of the nation’s leading real estate advisers.

Grubb & Ellis said 2010 commercial real estate fundamentals will decline more slowly than in 2009, with most property types reaching bottom near the end of the year and beginning a slow recovery starting in 2011.

That sobering prognostication was part of the company’s 2010 forecast. The report said that because the labor market lags the broader economy and commercial real estate needs jobs to fuel its revival, this year will be one of mostly hanging on.

One of the few bright spots, according to the forecast, will be the slowing in the decline of commercial property values.

“The good news is that the free fall 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,” said Bob Bach, chief economist for Grubb & Ellis.

Here on Long Island, commercial investment properties have primarily escaped foreclosure unlike some other markets across the country. But it might just be a matter of time before owners of a couple of distressed properties, especially office buildings, succumb to their lenders. Those highly-leveraged real estate acquisitions made when financing was cheap and plentiful are now a drain on the books of the banks and institutional investors that funded the purchases.

Brian Lee, an executive with Melville-based Newmark Knight Frank, said the lenders will decide to extend loans to borrowers or foreclose, but either way, it represents a major hit for real estate financing sources.

“That’s the most critical element to what’s going to happen in 2010,” Lee said.

Companies on Long Island are still contracting, sublease space abounds and Lee said the weak demand is creating a lot of competition for the few prospective tenants or buyers looking to lease or purchase.

Because of continued weak demand, expect rents to drop as much as 10 percent in 2010, but probably not further than that, according to Lee. He predicted more vacancies in the retail sector this year, as the Christmas season did little to bail it out from weak sales in 2009.

Ron Koenigsberg of American Investment Properties in Garden City said many landlords have stayed afloat through 2009 by lowering retail and office asking rents to avoid vacancies. Also, he said more commercial property sellers will provide their own financing for buyers, eliminating the need to find increasingly cautious traditional lending sources.

Koenigsberg is a little more optimistic than Grubb & Ellis. He thinks the retail and office sectors on Long Island will compare favorably with other areas. But of the four sectors examined by the Grubb & Ellis forecast, Long Island was nowhere to be found on three of the lists on best market strength, placing sixth for the strength of its multifamily housing market.

Lee sees some light at the end of the tunnel but cautions that 2010 will be pivotal either way.

“We’re not out of the woods yet,” Lee said. “If this turns south it could get ugly.”