Thursday, September 3, 2009

US office property boom decades away: Jones Lang

(NEW YORK) The level of US commercial property deals seen in the boom years of 2005 through 2007 may take a generation to return, according to a report by property services company Jones Lang LaSalle Inc.

US commercial property sales in the first half of 2009 totalled US$16 billion, down 80 per cent from the same period a year earlier and off 93 per cent from the market peak of US$231.4 billion in the first half of 2007, according to the firm's US Mid-Year Capital Markets bulletin, released yesterday.

At US$5.2 billion, second-quarter sales were easily the lowest on record, down from US$30.7 billion in the year-earlier quarter and off 95 per cent from US$114.7 billion in the second quarter 2007.

From the peak of the market to the end of the second quarter 2009, US office asking rents fell on average 10 to 25 per cent. Office leasing is down 25 to 50 per cent. Commercial property prices are off 30 to 55 per cent, according to the report.

The credit crisis, which accelerated at the end of last year, essentially shut down mortgage lending and other loans critical for property sales and refinancing. Although lending to selected borrowers has resumed somewhat, the US recession has pounded rents and occupancy rates.

'It is unlikely that any true debt liquidity will return to the market until mid-2010 at the earliest,' Kenneth Rudy, president of Jones Lang LaSalle's Capital Markets practice, said in a statement.

Meanwhile, first-year yields on the building purchases have moved up 2.5 percentage points. The yield, also called a cap rate, moves inversely to the price, and a 2.5 per cent cap rate rise could knock a third off prices.

Prices for office buildings are not expected to begin to recover until at least 2012, because commercial property performance, which is based on job growth, lags the economy.

The retail and lodging markets also will need additional time to recover as they depend on consumer spending and business travel. - Reuters

Source: Business Times, 3 Sep 2009

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