With the closing of Mervyn's, Linen's 'N Things and other retailers here, San Diego County has experienced 562,390 square feet of negative net retail absorption since the year began, and Circuit City's demise could make the figures worse.
So said Sean Yousofy, a managing director with PGP Valuation, which sponsored a session on the state of the commercial and residential markets at Symphony Towers Thursday.
Yousofy, who said the countywide retail vacancy rate has climbed from 3.6 percent at year-end to 4.1 percent now, said while we are in for a very rough time, the spaces should refill if not immediately, almost certainly within the next 12 months.
Kohl's for example, has pledged to take at least a couple of the Mervyn's locations here.
"In my opinion, it will take a year to rebound, but after that we should be OK," Yousofy said. "The shops will get re-absorbed."
Each of the speakers addressed the crisis in confidence that has paralyzed the markets.
"We need to educate people. We have been inundated with bad news, but in point of fact, it's not really that bad," Yousofy said.
Yousofy also disagrees with those who are saying there could be a 50 or even 60 percent decrease in commercial property values over the next year, adding that while he expects an increase in commercial property foreclosures, he doesn't expect they will be nearly as devastating as those in the housing market.
Yousofy said unlike those cases where homebuyers put little or no money down, most of the people who purchased commercial properties had to make substantial downpayments.
"They were generally more prudent," he said.
Sometimes, however, properties will get in trouble despite a landlord's best efforts.
They had no way of knowing Mervyn's, Linens, and Circuit City would vanish, and are watching nervously as Sears, Macy's and Ann Taylor struggle to right their ships.
Norman Miller, director of the Masters in Real Estate Program at the Burnham-Moores Institute for Real Estate at the University of San Diego, said he thinks it will take the retail market about 1 1/2 years to bottom out.
Miller said commercial markets could be helped a great deal if the U.S. government agreed to funnel about $500 billion into the commercial mortgage-backed securities (CMBS) market.
These securities could back all kind of commercial projects, including apartments.
Even in downturns, San Diego's apartment market has generally outperformed those in most other parts of the country.
Still, vacancies appear to be climbing here as well. The good news is even if the apartment vacancy edges up a bit in the county, it still will only be about 5 percent.
"People need a place to live even if they don't have a job," Miller said.
The economy may be difficult, but it also presents opportunities. Miller said several of his masters program students have pooled their resources to purchase distressed housing.
About one in four homeowners here are in a negative equity position. Miller noted it is worse in Nevada, where 48 percent of homeowners are "underwater" in this way.
Miller noted the housing situation is bad enough here where foreclosures are now more than 50 percent of the total residential sales. Some areas such as portions of Chula Vista, are worse than that.
"You'll even see differences within the same zip codes," Miller said.
And when does he expect residential prices to rebound back up to where they were at the peak in 2005? Miller said it could be 2016 before that happens.
Lance Dore, PGP Valuation vice president of governmental affairs, said institutional memory can be crucial in this economy. "Nobody who has been in business for 15 years or less has seen a cycle like this," Dore said.
San Diego's residential market has been hit hard, but as Edward Carlson, a PGP Valuation senior managing director noted, we are in much better shape than in the Inland Empire.
"I can't tell you how many projects there have been stopped in mid-span," Carlson said, "and the lot prices are well below the finished costs."
Even here, Carlson said approved tentative maps, which are like the coin of the realm to developers in good times, have little meaning in this economy.
What's positive, Carlson said, is with few homes and condominiums being built (downtown condominium construction is nearing its end), the market will have a chance to catch its breath.
"What's more, builders are starting to buy lots again," Carlson said.