Global Investment in CRE Down 59 Percent in 2008; Will Drop More in 2009

It was the thud felt around the world. Last year, as the credit crunch and economic downturn spread from country to country, investment in commercial real estate across the globe plummeted 59 percent, going from just over $1 billion in 2007 to just $435 billion, according to real estate services firm Cushman & Wakefield Inc.’s Investment Atlas 2009, which is scheduled to be published later this month. North America topped the list with a 73 percent decline in investment, followed by Europe, where investment plunged 52 percent, and then Asia, where numbers fell 45 percent. While investment activity slumped pretty much across the board, the numbers weren’t so drastic everywhere; in Latin America, investment dropped by a relatively low 9 percent. There is a light at the end of the tunnel and it is slowly becoming more visible through pricing. “The U.K. is most of the way through the pricing correction,” Janice Stanton, senior managing director with Cushman’s capital markets group, told CPN. “It will be the U.K. first, the U.S., then Continental Europe. Emerging markets started to feel the decline halfway through 2008 and they’ll still be in it when we come out of it.” But full recovery of the real estate market hinges on the economy. “Looking at the Blue Chip economic forecast, recovery will happen in the second half of 2009, but in any economy GDP recovers before jobs recover, and in real estate, we really care about jobs,” Stanton said. More jobs will spur demand for more office space, and will prompt increased spending at retail locations, and additional leisure and business travel. However, the anticipated economic turnaround will not have an immediate impact on the real estate industry. “Real estate recovery will lag a minimum of six months.” So, when will investors return to the market in the U.S.? “The next 12 to 18 months will present the biggest buying opportunity in decades because a lot of leveraged assets have to be de-leveraged and will be sold at big discounts,” she noted. Still, investors will watch their step. “Investors know what they’re doing and they’re trying to be thoughtful and strategic about how they’re generating capital and deploying capital. They’re being very careful. We have a very cautious investment community. They’re really waiting to see two things happen: the economy to bounce back and more liquidity in the debt market.” When the economy does recuperate and there’s more debt, real estate will likely recover quickly. “It should snap back,” Stanton said. “We actually had a controlled supply and demand situation; we just got hammered by the credit crisis and the recession. Presuming the stimulus package works, we’ll have a snap back because the real estate market did not overbuild. I have hope that we will get an Obama bounce.”