by Rob Crisell and Mary Piper

The good news: As we move into the second half of 2010, developers, brokers, and investors in Southwest Riverside County are cautiously optimistic about commercial real estate.  In 2009, those of us caught up in a miserable commercial real estate market were frantically “looking for the bottom.” Thankfully, around the start of 2010, we found it. The bad news: It is very, very dark at the bottom.

Nationally, the consensus of prognosticators in California and elsewhere has been that, while growth in most sectors of our economy has been slow, it does exist. The current forecast for growth is between 3.5 and 4.2 percent, with unemployment declining from 9.5 to 9.1 percent. This July, a majority of Fed officials announced at its quarterly meeting that it would take “no more than five or six years” to reach national benchmark goals for maximum employment with low inflation. In San Diego and Orange Counties, we have had reports of much stronger leasing and sales over the past six months.

The story is similar here in the Inland Empire. Our unemployment may be higher and our growth may be slower than elsewhere, but the trend is definitely upward. John Husing and others have pointed out recently that our region has seen a slight decline in unemployment numbers and small increases in home values and retail sales. As Husing puts it, we are “transitioning from severe shrinkage to very slow growth.”

For those of us in commercial real estate, “very slow growth” is sometimes indistinguishable from the previous 24 months of decline. It often seems that Temecula Valley is the only region not experiencing a recovery. The volume of leasing and sales is anemic, but better than 2009. Commercial lease rates have bottomed out. Vacancy rates remain high (north of 25% in office, for example), though tenants are tiptoeing back into the market, including big box retailers. Non-REO land and building sales are still virtually non-existent. Financing remains a constant challenge for most buyers. Commercial development is still a few years away.

Nevertheless, the commercial real estate market is getting better, but at a pace that is often maddeningly slow. To quote Sting, all this good news makes us so happy that we can’t stop crying.

Rob Crisell and Mary Piper of Lee & Associates in Temecula.