Commercial Real Estate Distress Far From Over, Survey Shows

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

All three indices tracked by the "Sentiment Survey" have risen considerably since last fall. 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 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.

Capital market conditions remain extremely fragile, the survey shows, but there is now a greater mix of perspectives on the markets' trajectory. On the debt side, 28 percent of those polled said credit availability is worse today than a year ago, compared to 71 percent who said so in the previous quarter. The percentage who characterized equity availability as worse today than one year ago also dropped significantly — from 55 percent in the 3rd quarter to 17 percent in the latest survey.

Almost all participants in the current survey (95 percent) expect debt market conditions to be at least the same or better 12 months from now.

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