Credit Crunch Slashes Commercial Property Sales in Half

In a stunning finding, a Real Capital Analytics Inc. study has discovered that global property sales fell by 50 percent during the first half of 2008. Sales in Germany, where the collapse was the most severe, fell by 65 percent, while sales in the United States plunged 63 percent. During the first half of the year, investors fled industrialized economies and sought deals in the developing world. India, for example saw its commercial property sales rise by more than 100 percent during the first half of 2008. So did Romania and the United Arab Emirates. Brazil rose 40 percent, with Malaysia right behind at 39 percent. China, Italy, Japan, Spain, Hong Kong and Russia rose between 4 percent and 40 percent. What explains the rise of transactions in emerging countries? “Most sophisticated investors expanded their stock and bond portfolio holdings into global markets 10 years ago to diversify geographically,” Real Capital Analytics managing director Dan Fasulo told CPN. “Real estate has been slower to get into that game. And today, many real estate investors seem to be using the credit crunch as an excuse to speed up the process.” But are the sales declines in industrialized countries caused by the credit crunch that began in the residential sector? “The commercial real estate game doesn’t work without debt,” said Dan Fasulo. “Because of the credit crunch, this is not a good time to go to the bank.” That’s apparent in the decline of sale in different commercial property types. They all took a beating. Hotel, office and retail property sales plunged 68 percent, 60 percent and 54 percent, respectively. Industrial sales fell 38 percent and multi-family dropped 34 percent. The only bright spot was development sales, which rose 11 percent. Fasulo also noted that that the declining sales come in the wake of a record 2007 notable for mega-portfolio transactions, as numerous real estate investment trusts went private. “The portfolio sales inflated the statistics,” he said. “In 2008, portfolio sales have declined by 60 percent, while one-off sales declined by 33 percent. While the one-off sales have fallen, they have not fallen as far as portfolio sales.” Fasulo said that two pieces of news seem to forecast a better future. First, the equity funds have raised tens of billions of dollars in capital this year, he said. Because of the credit crunch, they are just sitting on the money. In addition, there is no oversupply in any of the commercial property sectors. No sector has overbuilt during this cycle. “There isn’t enough office space in major cities around the world, Fasulo said. “There is arguably not enough retail. There are definitely not enough apartments for people to live in. With plenty of capital and lots of demand, when credit loosens up, the commercial sector is likely to come roaring back.”