Commercial Real Estate Investor Survey Reflects Declining Confidence

Marcus & Millichap Real Estate Investment Services and National Real Estate Investor magazine released the results of the industry’s largest investor survey, in which participants revealed the lowest confidence level observed in five years. Of the 1,129 private and institutional real estate investors surveyed nationwide, 51 percent plan to increase commercial real estate allocations in 2009, compared to 62 percent a year ago and a high of 74 percent in 2005.
 
“Despite the significant drop-off in acquisition plans from the peak in 2005, it is interesting to observe that slightly more than half of investors are still planning to increase their commercial real estate holdings,” says Harvey E. Green, president and CEO. “This speaks to the opportunity that many investors expect as prices adjust.” Indicating a lack of “panic” in the market, only 11 percent plan to reduce their real estate portfolios in 2009, according to the survey results.
 
The majority of investors polled expect commercial real estate values to decline further in 2009, with 67 percent expecting price corrections of at least 10 percent on average, and 32 percent predicting price declines of 15 percent or more. “Prices are adjusting; however, there is a wide gap between top-tier properties in primary markets and lower-quality assets in secondary and tertiary locations,” according to Hessam Nadji, managing director of research services.
 
The highlights of this year’s survey include:
 
The top concerns of commercial real estate investors are availability of financing (60 percent), creditworthiness of tenants (29 percent) and rising vacancy rates (28 percent).
 
Overall, 22 percent of investors believe this is the right time to buy; 64 percent believe it is the right time to hold; and 14 percent believe this is the right time to sell commercial real estate.
 
59 percent of respondents do not need to refinance any part of their portfolios in 2009, and only 12 percent indicate the need to refinance 20 percent or more of their holdings.
 
59 percent of respondents expect all-in mortgage rates to be higher a year from now, and 74 percent believe financing will be as difficult or more difficult to obtain.
 
Investors are most bullish on apartments, with 34 percent indicating now is the time to buy, and 48 percent expect apartment rents to grow in 2009. This was followed by 23 percent who believe this is the right time to buy land, and 16 percent for buying industrial. Fourteen percent of investors believe this is the right time to buy CBD office product, and 11 percent believe this is the right time to buy suburban office. Retail scored the lowest on the acquisition scale, with 5 percent believing this is the right time to buy mall properties.
 
49 percent of respondents indicated that their acquisitions in the past year were less than they had planned, primarily because prices had not adjusted enough, lack of available financing and uncertainty with future values.
 
Respondents expect a slow economic rebound (31 percent expect the economy to be weaker in 12 months, 30 percent expect it to be the same, and 33 percent expect it to be stronger) and anticipate softer real estate fundamentals (for most property types, a larger percentage expect a decrease in effective rents and property values than an increase).
 
60 percent of respondents expect a full recovery of the CMBS market eventually, but it could take at least two years.
 
60 percent of investors expect a change with capital gains tax as result of change in administration, while 49 percent expect increase government oversight of financial markets.
 
Respondents to the survey have been in the industry an average 19 years and have an average $32 million in commercial real estate assets. In response to the turmoil in the financial markets, an additional 352 commercial real estate professionals were surveyed between September 15 and 19, and an additional 562 commercial real estate professionals were surveyed between October 6 and 10.
 
For a full copy of the survey, visit www.marcusmillichap.com.  
 
Founded in 1971, Marcus & Millichap is the largest commercial real estate brokerage in the nation. In 2007, the firm closed $20.7 billion in transactions.