As Values Fall, Players Plan to Pump Up the Volume in ’09

Plunging commercial property values this year could lead to a flurry of investment sales activity in 2009, according to a study by Jones Lang LaSalle Inc. Almost two-thirds of the property owners, development firms, service firms and consultants polled for the biannual study said they intend to bump up their activity next year. Jones Lang LaSalle surveyed professionals who planned to attend the Urban Land Institute’s fall conference this week in Miami. The findings reflect a big jump in the percentage of real estate players that are eyeing increased opportunities for 2009. Jones Lang LaSalle’s most recent poll, taken in the spring, found that slightly less than half of those surveyed planned to step up activity. The capital markets crisis is the main catalyst for the shift, explained Jack Minter, managing director for investment sales. Sixty-two percent of participants in the study think that stabilizing the debt markets will take at least a year; the remaining 38 percent said that equilibrium would arrive between three and 12 months from now. In a statement yesterday, Minter termed the survey results “a clear indication that investors are ready to start buying at distressed prices that will likely drop an additional 15 to 25 percent in the coming year.” Since the market peak in Jan. 2007, property values have slipped only 12 percent, according to Moody’s/REAL Commercial Property Index, which synthesizes a variety of industry research. That reflects the nature of today’s conservative investment market, which currently favors high-quality, fundamentally sound assets. Many professionals apparently feel that the coming investment values will result from the declining prices in all property sectors. Respondents to Jones Lang LaSalle’s survey expressed greatest concern about the retail sector. Fully 94 percent of those surveyed said they expect the retail sector investments will decline in value somewhere between zero and 50 percent next year. That reflects a more pessimistic view than the Jones Lang LaSalle study uncovered just six months ago, when 56 percent of respondents predicted that values would drop between zero and 50 percent. Other property sectors will have little more to boast about in 2009, respondents said. Seventy-five percent expect that the office sector values will slide as much as 30 percent, a jump from the 47 percent who agreed with that outlook this spring. Another 74 percent of those surveyed said that the hotel sector will underperform anywhere from zero to 40 percent. The prospects seem only slightly better for the multi-family and industrial sector. Sixty-seven percent of respondents told Jones Lang LaSalle that they expect multi-family investments to slide in value by somewhere between zero to 30 percent; just six months ago, only 26 percent held that view. And 66 percent of respondents agreed that the performance of industrial assets will drop by as much as 30 percent next year. Only 40 percent of poll participants this spring expected a decline that size.