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 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.
“The problems now are more clearly defined and there’s a grim sense of reality setting in, but that’s a long way from saying markets are stabilizing or that conditions are on the mend,” said Roundtable President and CEO Jeffrey DeBoer. “With job losses mounting, consumer confidence in the doldrums, and a relapse of the recession still possible, additional policy action is needed to restore credit availability–the lubricant of the economy and job creation–and to address the equity shortage resulting from falling commercial property values,” DeBoer continued.
An overwhelming majority of the 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. But respondents were far from optimistic about future valuations, with 71 percent saying 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,” DeBoer added. Continue reading