The volume of transactions in 2007 was a 4% increase over the volume in 2006, which was approximately $360 billion. While 2008 figures are expected to be below 2006 and 2007 numbers, 2008 volume is still expected to be more than the average annual volumes of 2002 through 2006, which ranged from $215 billion to $220 billion, says Noble Carpenter, managing director of Jones Lang LaSalle's Capital Markets Group. The volume will seem "sluggish" but "it is still a very healthy transaction pace," he says.
The decrease in transaction volume for 2008 is due to "primarily the credit crunch and the uncertainty around the economy," Carpenter says. "We think there will be a lot of caution in the market."
Additionally, there will not be as much financing available as there had been in previous years, he adds. There are currently more than $50 billion in five-year, full-term, interest-only loans. "They will be very difficult properties to refinance because the underwriting done at the time was very aggressive," he says.
Only a small number are expected to go into foreclosure and there should not be a large impact on the commercial real estate market, according to Carpenter. But, he adds, it is hard to determine what the psychological impact will be, and it is possible that there could be a large psychological impact if there are one or two "high profile" foreclosures.
Real estate fundamentals remain strong in most markets and the subprime mortgage turmoil is expected to subside by the end of the year. "We think this will work itself through in 2008," he says.
"Optimistically, we would love it to be done by the end of the first quarter. Realistically, it will likely occur in the second half of 2008." There is expected to be a decline in high-leverage and entrepreneurial buyers, but an increase in institutional, international and low-leverage buyers, Carpenter predicts. The volume in primary markets may remain the same, but there could be a sharp decline in transactions in secondary and tertiary markets, he says.
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