CBRE: Property Values Down 20 Percent Since 4Q07

April 16, 2009
By: Tonie Auer, Contributing Correspondent, Commercial Property News

Since the fourth quarter of 2007, commercial real estate values have dropped about 20 percent altogether, a price decline worse than those in the early 1990s, said CB Richard Ellis analysts as part of a live web presentation Wednesday.

Between the fourth quarter of 2007 and the end of 2008, commercial real estate prices dropped 11.5 percent with preliminary indications for the first quarter of this year looking like another 10 to 12 percent decline adding up to a cumulative impact of around 20 percent, said Raymond Torto, global chief economist with CBRE Research and Consulting.

“By contrast to what happened in the 1990s, we’re within the first year of declines. Then, the first year’s decline was 4 percent. Things are dropping faster in the U.S. this time,” Torto noted.

And the falloff in prices has been widespread. In the United Kingdom, the decline in values is about 39 percent, which is also a faster decline than what occurred in the 1990s downturn, Torto added. “If you look at the U.K. decline versus the U.S. decline, they are similar if you compare the two of them. America is slow compared to the U.K.,” said Brian Stoffers, president of CBRE Capital Markets. “If you talk to the professionals, things are much more severe than what is shown the index at this juncture.”

Valuation levels are off today anywhere from 25 to 35 percent versus the peak pricing in 2007, said Greg Vorwaller, COO of CBRE Capital Markets.

“In the U.K., I think (the 39 percent drop in values) is on the button,” said Jonathan Hull, executive director of EMEA Capital Markets. “If you look at the market as a whole, different sectors and different countries are moving at different speeds. The correction in the prime markets may not be as severe as that, but in the secondary markets it may be even greater than 39 to 40 percent. It is mainly driven on the capital side.”

But London has seen faster correction than other markets and is leading the way in comparison to the U.S., Hull said. The correction in the U.K. during the course of this year is on the rental side more than the capital side.

“If you look at the London market today, there are more transactions as we speak,” Hull said. “Activity is improving. In the last two weeks of March, there were 700 million pounds of transactions into offer. That is a major movement compared to the rest of quarter," he noted, adding that capital in the London market is driven by German market funds along with some private equity.