Sign of transaction improvement in US commerical real estate market
The gap between US commercial property buyers and sellers is narrowing, indicating the shattered market is closer to beginning a path to recovery, it is claimed.
The last couple of weeks have seen a slight improvement in transactions, according to Allen Smith, chief executive of Prudential Real Estate Investors.
'Credible players are appearing and bidding on assets. We'd seen that earlier, but the people who were showing up to bid frankly weren't terribly credible and often were really not prepared to close. We are now seeing people show up who fall into the institutional category and are clearly ready to close. We're more prepared to act on that as a seller than we might have been in the past,' he told the Reuters Global Real Estate Summit in New York.
But prices are not improving and values have fallen 40 to 50% from their peak prices reached in 2007.
Other sellers also are getting closer but have not yet embraced the new price reality and sales are being discussed but not done at a level that can clearly indicate market prices.
'Intellectually people understand that's where the market is headed and yet transaction additivity remains extraordinarily low,' Smith said.
Commercial real estate sales worldwide in the second quarter are expected to be down some 67% from a year earlier, according to research firm Real Capital Analytics, with US volume suffering more, down 83%.
The correction in the US commercial real estate market, and even for some of the global markets, is going to be painful for a lot of people, particularly those who bought their properties using liberal amounts of debt financing, the conference heard.
'For a lot of people, particularly those who pursued highly leveraged strategies and entered this downturn 70% levered, this is a depression, because you're wiped out. It's going to be pretty bad and it's going to be pretty bad for a couple of years,' concluded Smith.