PPR Forecasts CRE Prices Have Further to Fall

By Allen Kenney

Commercial real estate property values have fallen between 25 percent and 30 percent, and losses could reach between 35 percent and 45 percent by the time the market bottoms out, according to a new forecast from Property and Portfolio Research (PPR).

In a report released August 11, Andy Joynt, a real estate economist with PPR, said the industry should expect prices to continue to drop until the end of 2010 in the retail and warehouse sectors. He projected that apartment and office values would deteriorate until the middle of 2011.

Joynt said vacancy rates in the core sectors should continue to climb into the summer of 2010, at which point fundamentals could be expected to improve.

"Real estate investment is in a hold pattern, and not just because everyone is on summer vacation," Joynt noted. "With fundamentals expected to weaken through mid-2010 for most property types, potential buyers are still sitting on the sidelines, waiting for distressed assets to hit the market."

Looking farther ahead, Joynt is forecasting double-digit income returns from the four major property classes in 2012 and 2013.

"Substantially higher yields will be the primary component of returns in the outer years of the forecast, as CRE ownership moves back to good old-fashioned cash flow-based returns," Joynt said.