PWC Survey: Investors Focus on Maintaining Property Values as Economy Struggles

PWC Survey: Investors Focus on Maintaining Property Values as Economy Struggles
March 18, 2009
By: Barbra Murray, Contributing Editor, Commercial Property News

"Survival mode" is how the current state of the commercial real estate investor community is described in the first quarter 2009 PricewaterhouseCoopers Korpacz Real Estate Investor Survey. With the recession taking its toll on the market, investors across the board are just trying to bolster the sliding values of their portfolios in an attempt to keep their heads above water in one of the country's most economically challenging climates seen in decades.

Confidence in the real estate market has been eroding with great speed. Speaking to CPN, Susan Smith, editor-in-chief of the PWC Korpacz survey and a director in PWC's real estate sector services group, put it all into perspective. She explained that on a scale of 1 to 10, with 1 being an abysmal forecast and 10 being very optimistic, the third quarter of 2008 was a 6 and now it's more like a 4. "After looking at the data and talking to investors, there's no panic, there's more trepidation, more disappointment. There's a sense that the bottom hasn't been hit. Values are going down and it's one of the most difficult operator and ownership environments they've seen."

As far as the various real estate sectors go, retail owners are taking a pounding. Sales of regional malls are virtually nonexistent and at power centers, the battle is on to maintain occupancy levels and rental rates. In the office market, vacancies are on the rise even in the most reliable metropolitan areas, and an anticipated decline of as much as 30 percent is on the horizon for city center and suburban assets. Lodging, however, is in the biggest struggle. "It's experiencing tremendous reduction in demand," Smith said. "It's one sector that kind of falls of the cliff when the economy goes south."

There was some good news from the survey participants, however "The multi-family sector is in better shape than others to lead recovery," Smith noted. "There are some pockets, like Las Vegas and Phoenix, that are underperforming because they had a tremendous round of construction of both rental and condominium units in anticipation of population growth that just hasn't happened, but we could start to see signs of market recovery in 2010."

Respondents to the PWC Korpacz survey were not queried about the impact of the stimulus bill on commercial real estate, nor did they feel compelled to broach the subject. "Many investors don't link anything with government to the real estate industry," Smith said. "If you're in it as a long-term holder, you know there are ups and owns, and you have to do what you can to get through it."

The most important action investors feel they can take right now to get through it is to focus on shoring up property values, be it through lease expansions and renewals, offering incentives or decreasing operating costs. "They aren't looking to abandon real estate, they're looking at how to preserve value and be in good shape to capitalize on the opportunities to come."