The market was crippled by the global credit crisis with sales reaching just $125 billion, the report from real estate services firm Jones Lang LaSalle says.
The decline was most marked in the last part of 2008, as the commercial mortgage-backed securities market, the key source of funding for the real estate boom of the prior five years, virtually closed.
CMBS issuance plummeted 95% in 2008 to $12.1 billion. There has been no CMBS issuance since June, the report points out. But it is hoped that new president Barack Obama and his administration will be able to inject some movement by the middle of 2009.
'The beginning of a new presidential administration and new aggressive monetary policies should increase certainty into the debt markets by mid 2009, but the CMBS market as we knew it in 2006/07 is gone,' said Bart Steinfeld, managing director of Jones Lang LaSalle's Real Estate Investment Banking practice.
Over the past few months, the commercial real estate industry has seen a standoff between would be sellers who refuse to capitulate to values that are about 30% or more lower than they were from their highs in early 2007 and prospective buyers who will not pay prices they believe are too high, the report said.
But that standoff may finally shake loose when some owners find themselves facing foreclosure because they have no sources for new loans to replace ones that are maturing.
'It may take another three to four quarters for broad based distress to reach the sales market, but there is no question there is capital waiting to invest in real estate once opportunities arise,' predicted Earl Webb, chief executive of Jones Lang LaSalle Capital Markets.
Also, as rents continue to soften and occupancy falls, property values may continue to decline and that is likely into 2010, the report concludes.
