Commercial Real Estate Distress Far From Over, Survey Shows

December 1, 2009
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With high unemployment pushing up vacancies, no credit capacity, and property values plummeting, commercial real estate markets remain extremely stressed with little prospect for significant near-term improvement, according to The Real Estate Roundtable’s latest quarterly survey of senior commercial real estate executives.

All three indices tracked by the “Sentiment Survey” have risen considerably since the near-collapse of financial markets last fall—a reflection of respondents’ collective sense of relief at having survived the worst of the turmoil, and the extreme uncertainty and paralysis of last year giving way to a greater sense of acceptance of market realities. However, the latest numbers—particularly the “Current Conditions” reading of 56—remain well below the ideal of 100. An overall index of 100 means all survey respondents have answered that conditions today are “much better” than they were a year ago and will be “much better” 12 months from now.

An overwhelming majority of the more than 100 respondents in the Q4 survey said property values are down today vs. a year ago, although the percentage declined to 77 percent from 93 percent in the previous quarter. About 71 percent said they expect values to remain “about the same” or to erode even further in the next 12 months.

“So-called ‘zombie buildings’ and empty storefronts on Main Street will only mean bigger budget shortfalls for local governments, more layoffs for construction, hotel and retail workers, and further devaluation of investment portfolios held by individual and institutional investors,” said Jeffrey DeBoer, Roundtable president/ceo.

“If there is any good news to report, it’s that the trillion-dollar refinancing crisis in commercial real estate now has the attention of policymakers at the highest level—including President Obama,” he added.