Report Predicts Commercial Real Estate Slowdown in 2008
The recent credit crunch is going to show it’s true power in a major slowdown in the commercial real estate market in 2008. A report issued by PriceWaterhouseCoopers and the Urban Landscape Institute, written by Jonathan Miller of the Matrix, has been released and the outlook is expecting the stellar returns of the past 5 years.
According to the report, some 600 of the leading real estate experts in the nation expect capitalization rates to rise and risk to be repriced. More than three-quarters see stricter underwriting standards on the horizon, but despite that they expect real estate investments will still outperform the stock market.
“The commercial real estate market has been going full throttle for several years with easy money and low interest rates that drove some sectors into questionable lending practices and highly leveraged spending,” said Tim Conlon, partner and U.S. real estate practice leader, PricewaterhouseCoopers. “But the run went on too long for some participants. Those who went beyond moderation will likely experience some headaches in 2008.” via the Pacific Business News
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Comment by Dave Lorti on 18 October 2007:
Interesting on the commercial side. Anecdotally, when I was looking at small apartment complexes for sale about ~1 year ago, the challenge was that pricing reflected a future ideal rent situation so that a new buyer was expected to pay the existing seller for what they MAY be able to achieve through higher rents as opposed to how the property was actually performing. Suffice to say, nearly all the properties presented a negative cash flow situation for a new buyer despite possible future rental increases. I knew this part of the market was affected like the residential in a way.