Ernst & Young: CRE Prices Have Further to Fall

Ernst & Young has a message for the commercial real estate industry: We haven’t hit bottom yet.

April 6, 2010
By Allison Landa, News Editor

Courtesy Flickr Creative Commons user olr2004

Ernst & Young has a message for the commercial real estate industry: We haven’t hit bottom yet.

The firm’s annual “Market Outlook: Trends in the Real Estate Private Equity Industry” finds that fund managers and others involved in the real estate private equity sector worldwide expect further deterioration in commercial real estate prices this year as unemployment leads to lower occupancies and declining rents.

At the same time, many fund managers were found to be preparing for buying opportunities that could manifest as early as the first quarter of 2011.

Though the report found that fundamentals are expected to soften, capital markets are predicted to open slowly and the availability of debt and capital will increase throughout the year. Moreover, pockets of well-positioned, low-risk, prime assets in gateway cities such as London, Washington, D.C., and New York were said to rally ahead of the broader market.

The pretend-and-extend phenomenon was expected to continue, but the report said that banks and other lenders will increasingly feel pressure to resolve troubled loans.

“In the U.S., 2010 appears to be a ‘set-up’ year for the next chapter of opportunity,” the report reads. “The real estate market bottom is still in front of us, but nearing in most geographies and asset classes, and institutional investors are still slowly evolving their focus from principal safety to increased yield. The sentiment for opportunistic investing in 2011 seems brighter and is being projected by many as the start of a great vintage of asset acquisitions.”

Ernst & Young polled more than 100 real estate professionals in the United States, United Kingdom, Japan, China, and India.