NEW YORK Dec 18 U.S. commercial real estate
faces a long, slow road to recovery that is more than a year
away for most types of property, with Washington policy-makers
increasingly pulling the strings that affect prices, according
to a survey commissioned by PricewaterhouseCoopers.
The recovery of commercial real estate is not expected to
gain much traction until late 2011 or 2012, given current
prospects for a lackluster economic revival in the United
States and high unemployment, said the fourth-quarter Korpacz
Real Estate Investor Survey.
Rental rates will continue to decline until strong,
consistent job growth resumes, according to the survey. With
$1.4 trillion of commercial real estate debt maturing by the
end of 2012, some property owners will not be able to survive
the downturn. Problems related to refinancing that debt could
further delay a recovery in the sector, the survey said.
More than 100 real estate investors were surveyed,
representing the views of real estate investment trusts,
pension funds, private equity firms and insurance and mortgage
EYES ON WASHINGTON
Pricing in the industry will be more influenced by
government and regulatory policy than by occupancy levels or
rents, said Robert White, President of Real Capital Analytics.
Policy makers control what happens to commercial mortgages
in default, White wrote in the report, and have encouraged loan
modifications and extensions even in cases where loans are
above a property's current value.
Tax policy, meanwhile, has made it easier for special
servicers to negotiate with borrowers, a move meant to prevent
a wave of maturity defaults and property fire sales. Keeping
rates low and easing restrictions on foreign capital will also
influence industry prospects.
Commercial mortgage-backed securities held about 42 percent
of distressed loans, U.S. banks 31 percent and international
banks another 13 percent, at the end of November, Real Capital
While the report did note some signs of a possible
improvement in the economy, such as improving labor trends, it
showed broad expectations for continued recession in 2010
across several property types.
Investors expect the office sector to remain in recession
in 2010, with a rebound the following year. A more prominent
recovery is not likely until 2012.
The retail real estate sector is expected to stage a modest
recovery starting in 2012, though some markets -- like Fort
Lauderdale, Houston and Nashville -- may improve earlier,
according to the survey of investors in 28 markets.
The warehouse sector, which reflects the movement of goods,
will remain in recession through 2010, with some properties
recovering in 2011, investors said. The apartment sector is
forecast to begin recovering in 2011 and 2012.
In the national suburban office market, investors said they
expect property values for suburban office product to decline
an average of 8.75 percent, as rents decline and landlords
struggle to maintain occupancy levels.
Owners of downtown office properties are expected to see
little relief in the coming year, as they contend with lower
rents, falling tenant demand and increased supply of subleased
space. Demand for central business district (CBD) space
typically lags the U.S. economy.
Investors also expect national power centers, developments
anchored by major chain stores, to be one of the worst
investment prospects in 2010, as the economy affects both
consumers and retailers.
(Reporting by Nick Zieminski; editing by Carol Bishopric)