The commercial real estate market in southern Idaho is expected to hit bottom in 2010, but will likely suffer less than bloated markets in other parts of the nation.

Unlike the housing market, which is in the process of being purged through foreclosures and sellers' growing willingness to lower their asking prices, the business of buying and selling commercial real estate has been stuck in neutral since the recession kicked in.

Vacancies at retail and commercial properties increased in places like Twin Falls and Burley since January 2008, say commercial real estate experts. But they say the region didn't experience speculative commercial development that overloaded markets in more populated areas like Boise.

"We just never had a rash of shopping centers being built, like they did nationwide,"said Steve DiLucca, president of Westerra Real Estate. "Commercial will be the next shoe to drop, but how far it drops in our area remains to be seen."

That's because there are mixed signals in the valley.

The Magic Valley Mall will be at 100 percent occupancy this holiday season, but the number of vacancies along Blue Lakes Boulevard is expected to be about 20 percent higher than December 2008.

Owners of business properties such as office buildings and warehouses will likely suffer a surge of painful defaults, write-downs and workouts with their lenders as the market finally faces up to the reality of its diminished conditions, according to a report released Thursday by the Urban Land Institute.

The era of wishful thinking is about to end, according to industry professionals who participated in the study.

"The recession," said Richard Cavota, a partner at PriceWaterhouseCoopers, "is now impacting the fundamentals of real estate."

Industry experts predict properties nationwide will have lost 40 to 50 percent of their value from the peak of mid-2007 by the time the market presumably reboots next year.

However, losses in south-central Idaho will likely be much lower, said DiLucca.

"Key to this year will be how the retail sector performs this holiday season,"he said.

Retail properties will take the biggest hits, the report said, as nervous consumers curb spending and companies delay rehiring. Many landlords who are barely hanging on now will lose their grip in 2010 - and some investors can hardly wait.

"Our report participants find that a sense of nervous euphoria is growing among liquid investors who can make all-cash purchases," said Stephen Blank, a senior resident fellow at the Urban Land Institute. "Those that are patient, daring and selective could score generational bargains on premium properties from both distressed sellers and banks that are clearing out unwanted bad loan and real estate owned portfolios."

The Los Angeles Times contributed to this report.