Commercial real estate investors predict the market will hit bottom next year and property values will drop 40% to 50% below the 2007 market peak, according to a PricewaterhouseCoopers-Urban Land Institute report.
Investors in this year's Emerging Trends in Real Estate survey indicated that they expect commercial real estate vacancies will continue to increase and rents will decrease in all property sectors before the market hits bottom in 2010.
“2010 looks like an unavoidable bloodbath for a multitude of ‘zombie' borrowers, investors and lenders. Given the looming ‘train wreck' of escalating commercial mortgage-backed securities rollovers ($250 billion to $300 billion annually through 2015), the shake-out period may extend several years as even some conservative owners with well-underwritten loans from the early 2000s see their equity destroyed,” the survey report notes.
A rebound is not expected until 2012, the report noted. When it does, respondents said they expect apartments to bounce back first among commercial real estate sectors when the economy does, said Stephen R. Blank, senior resident fellow for real estate finance at ULI. Apartment investment has the best risk-adjusted returns and also has access to credit from Fannie Mae and Freddie Mac, which is unavailable to properties in other commercial real estate sectors.