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Submerging Trends

PricewaterhouseCoopers and the Urban Land Institute have just released Emerging Trends in Real Estate: 2009, which I have the privilege of authoring. This is the 16th edition of Emerging Trends I have written and now I feel like have gone through an entire real estate cycle -- and a long one at that....

By Jonathan D. Miller | Updated on October 23, 2008

PricewaterhouseCoopers and the Urban Land Institute have just released Emerging Trends in Real Estate: 2009, which I have the privilege of authoring. This is the 16th edition of Emerging Trends I have written and now I feel like have gone through an entire real estate cycle — and a long one at that. In 1993 when I started writing these annual forecasts my colleagues at Equitable Real Estate kidded me for writing about “submerging trends.” We all were coming out of what amounted to the roughest period ever experienced for commercial real estate since the Depression — a combination of overbuilding and recessionary demand sent values plummeting and created monumental dislocation for our clients. In fact, our insurance company parent almost went under, rescued by a sweetheart deal for the French insurer AXA. They bought one of the nation’s largest insurers for about $1 billion. Sounds a little bit familiar.

Well today, commercial real estate isn’t leading the charge into economic crisis — this time it was housing. But now commercial real estate sectors are following the crowd over the cliff after the stock and bond markets with the recession providing an extra big shove. In Emerging Trends, the consensus of our survey respondents is that value writedowns off 2007 peaks will average 15-20%, hopefully less for trophy properties in the best markets, but likely much more for lower quality properties, especially in secondary and tertiary markets. And total NCREIF-core real estate returns will be well into negative territory next year.

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