In the meantime, landlords will wrestle with softening demand as tenants lay off workers and downsize their space needs. Reis predicts that the national office vacancy rate will reach 15.8% over the next two years before it eases again in 2011.

Investors take action

What can owners and investors do to minimize losses until the next growth cycle? Every property owner should focus on liquidity and cash flow, says Clay Wilson, executive vice president of commercial real estate lending at Coral Gables, Fla.-based BankUnited FSB, the largest Florida-based bank.

Steady income from a fully leased building enables the owner to maintain debt payments, and to obtain maximum loan proceeds if it becomes necessary to refinance or request a loan extension, Wilson says. It's also a good preventive measure to avoid an unwanted sale. “On commercial property that's cash flowing, there's no reason to sell if prices are down,” he says.

Some investors will need to sell assets, perhaps to liquidate capital to shore up the rest of a portfolio. Targeting the most able or motivated buyers will help to garner a reasonable sales price, according to Dan Vittone, senior vice president of Voit Commercial Brokerage in Irvine, Calif.

For Vittone's clients, that means marketing to all-cash buyers because they have the capital to complete a transaction, and to 1031 tax-deferred exchange buyers who are motivated to do what is necessary to close a deal.

“The former group is targeting distressed properties and is less motivated to pull the trigger, while the latter group has the proverbial gun to their head and must face the question of paying their taxes, or perhaps slightly overpaying for a property in a declining market,” says Vittone.

If conventional marketing doesn't bring the desired result, consider selling at auction, says Ross Ford, president and CEO of Plano, Texas-based TCN Worldwide. A consortium of independent real estate firms, TCN Worldwide's auction division recently sold Westside Market Shopping Center in Lubbock, Texas, to a buyer from the United Kingdom for $3.39 million, or 71% more than the seller's minimum price of $1.96 million.“In some cases, to get an asset off the books by a certain date is more important than an incremental gain in sale prices,” according to Ford.

Refinancing dilemma

Few lenders are interested in increasing their exposure to real estate, so borrowers with loans maturing in 2009 or 2010 have a better chance of getting a replacement loan from their existing lender than from a new provider.