The sharp drop in valuations of commercial real estate properties during the past year may be nearing a bottom, according to Los Angeles-based CB Richard Ellis Investors, in its recently released installment of “
First, the sharp pricing correction that has already taken place will continue to have a dramatic impact on sellers’ expectations, the authors of the report conclude. The NCREIF
Over four quarters, the index registered a cumulative depreciation of 19.1%. “By contrast, during the last severe real estate downturn in the early 1990s, it took the NPI ten quarters — from the end of 1989 until mid-1992 — to register the same drop,” according to CB Richard Ellis Investors.
“The increasing willingness of investors to recognize lower value for assets they currently own is putting pressure both on the appraisers to lower values and sellers to reduce asking prices,” the report states. “This means that while the pricing downturn in the early 1990s took many years to bottom out, the current downturn is much sharper, and therefore may be shorter.”
Second, the recent upturn in the performance of publicly traded REITs is viewed as significant because REITs have historically acted as an early indicator of pricing declines and recoveries in private
Third, the volume of property sales has fallen to such low levels that
“As cash-constrained owners increasingly become unwilling sellers, transaction activity will pick up,” concludes CB Richard Ellis Investors. “An increase in sales will provide needed pricing information to both sellers and buyers. This transparency will both encourage more sellers to offer properties at realistic prices and provide buyers with the confidence to re-enter the market.”