A Rough Year for Commercial Real Estate

Report shows most Realtors and brokers fear a hard 2010.

By Danny Wool (Nov 11, 2009 )

The commercial real estate market can expect another hard year in 2010, with recovery delayed to 2011. This is the finding of a new LoopNet poll for Q4 of 2009, surveying investors, brokers, and property owners.

Almost 50 percent of respondents said that they will have to wait another year for prices to rebound, up sharply from 13 percent in Q3. In contrast, the number of respondents anticipating a 2010 rebound dropped from 66 to 50 percent. About 10 percent said that property values will only hit bottom in 2012. Over half the respondents also said that property values will continue to decline by at least 11 percent.

Only 20 percent said that the market has already bottomed out.

The most pressing problem faced by the respondents was the continued inaccessibility of debt financing. This reflects a finding by the Mortgage Bankers Association, which found that commercial and multifamily mortgages were down 12 percent from Q2 to Q3 and a whopping 54 percent from what they were just a few years ago.

The hardest hit is retail properties, down 62 percent. Multifamily property lending, while significantly better, is still down 40 percent. The MBA attributes the decline to Fannie Mae and Freddie Mac, both of which have reduced their activity in the multifamily market.

This is coupled with a decline in rent revenues due to falling prices. The decline in office space mortgages is attributed to continuing downsizing among major industries. Silicon Valley alone has lost 50,000 jobs since the start of the recession.

Nevertheless, mortgage rates have dropped significantly since last year, and dipped below 5 percent this week for long-term (30-year) mortgages. Freddie Mac reports that interest rates for all properties have dropped 1.1 percent.