Commercial Real Estate Prices Could Slip 30 Percent Before Recovery

The commercial real estate market will have to absorb price declines of at least 10 percent before it can begin to recover and may require slippage of more than 30 percent, according to a poll by LoopNet, an online commercial real estate marketplace.

Two thirds of poll respondents said a market restart will require price declines of 10 percent or more from current levels with 37 percent predicting 10 to 20 percent declines and just under a third predict declines of more than 30 percent.

LoopNet noted that its members are predicting a 2010 recovery at least as regards their sector. Only about a third of respondents said they expect commercial real estate sales transaction activity to recover in 2009 while 42 percent said they did not expect the market to pick up until 2010. A significant minority, 26 percent, made the pessimistic appraisal that recovery would await 2011.

The biggest obstacle to recovery, identified by 46 percent of respondents, is capital.  Economic uncertainty and its commensurate influence on asset pricing was cited by 29 percent of respondents as top obstacle, making it the second biggest damper on recovery, followed by differences in pricing expectations between buyers and sellers, cited by 23% of respondents.

Results were largely consistent across all three major participant segments, according to LoopNet, but owners rated access to capital as slightly more troubling and differing price expectations slightly less than did brokers or investors.

LoopNet, which claims more than three million signed on participants, said 1,500 of members responded to the poll conducted from May 7 through May 21.