Three of Four Executives Expect Commercial Property Values and Rents to Keep Falling in 2010: Deloitte Survey

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Mar 31, 2010, 09:00 ET

NEW YORK, March 31 /PRNewswire/ -- Roughly three-quarters of executives expect both commercial property values (76 percent) and asking rents (73 percent) to continue to fall in 2010, according to a recent online survey of more than 325 executives conducted by Deloitte.

"The commercial real estate market continues to be adversely affected by one of the deepest recessions in decades. Increased unemployment has resulted in less demand for office space, reduced rents and an overall decline in commercial property values," said E.J. Huntley, principal, Deloitte Financial Advisory Services LLP and national leader of the real estate consulting practice. "Right now, commercial real estate executives are weighing their options, determining if the time is right to invest while prices remain depressed and before interest rates begin to rise."

Roughly three-quarters (74 percent) of executives expect interest rates to rise in 2010, with 48 percent expecting rates to increase by 50 basis points or more, according to the online survey. Executives also think cap rates (59 percent) and discount rates (57 percent) will rise; 40 percent predict cap rates to rise by 50 basis points or more and 35 percent anticipate discount rates will rise by 50 basis points or more.

Almost two-thirds (63 percent) of executives surveyed predict that a full recovery of the market will require two to three years, while 29 percent believe a full recovery will take four years or longer. Only 8 percent anticipate a full recovery within the next year.

"A recovery of the commercial real estate market from its current contraction will be protracted," said Huntley. "As a result, many commercial real estate executives are contemplating opportunistic investments."

Nearly half (47 percent) of executives surveyed were either already investigating potential acquisitions, or expect to begin doing so within the next year (20 percent).

Nearly half (46 percent) of respondents feel today's lower prices make it more financially advantageous to buy rather than lease. In fact, 51 percent of real estate company executives and 39 percent of commercial property tenants said their companies are currently investigating potential acquisitions.

To see full survey results, visit www.deloitte.com/us/fas/realestateoutlook.com.

About the Survey

Deloitte contracted Bayer Consulting to conduct an online survey of 327 executives, including 186 executives from real estate companies and 141 executives from corporate tenants, regarding real estate recovery. The survey was conducted from December 2009 to January 2010 through an online questionnaire.

Among the executives participating in the survey, the corporate tenants represented a range of industries with the largest concentrations in professional services (28 percent), financial services (19 percent), retail (11 percent), life sciences and healthcare (9 percent) and technology (7 percent).

The executives participating are from companies representing a range of sizes as measured by annual revenues. Among tenants, 46 percent had revenues of $1 billion or more, 21 percent had revenues of $100 million to $1 billion and 33 percent had revenues of less than $100 million. For the real estate companies, 20 percent had revenues of $1 billion or more, 35 percent had revenues of $100 million to $1 billion and 45 percent had revenues of less than $100 million.

About Deloitte

As used in this document, "Deloitte" means Deloitte Financial Advisory Services LLP and Deloitte Services LP, separate subsidiaries of Deloitte LLP. Please see www.deloitte.com/us/about for a detailed description of the legal structure of Deloitte LLP and its subsidiaries.

SOURCE Deloitte