The reason is that, "We had such a steep drop to begin with," says Rogers. "From peak to trough, we're off about 42%. You're not going to fall to zero; there's going to be some base level in line where the economy is right now, and we just see it leveling out."
Even with that rapid descent, says Rogers, "we are projecting further declines into next year, and the reason is that we have not seen demand come back yet." One factor behind that, he says, is that "we have too much of everything. We overbuilt during this run-up, and it will take some time to absorb all of that." Integra projects that valuations will continue easing downward until the end of the second quarter in 2010, with a 5% decline over the next six months, compared to the 11% to 17% drops seen this year.
This quarter's survey, which was conducted in November, shows that lodging and retail experienced the greatest declines in value in the current downturn, with the Western states suffering the steepest drop regionally. Office, industrial and multifamily have seen a 3% drop in value in the past three months, with the lodging and retail sectors experiencing a 5% drop.
The regions with the highest rates of devaluation over the past 12 months include Eastern lodging, off 20%; Western lodging and retail, both off 19%; Western office, down 18%; and Eastern office, off 17%. Those that fared comparatively well in the past 12 months include Central multifamily, off 7%; Central industrial, off 9%; Southern industrial, off 10%; and Southern multifamily and Central office, both 11%.
While multifamily is historically the safest bet, in the current cycle that sector has been suffering declines as well. "The downturn has been so severe that people are still starting to double up or move back home, to a greater degree than has happened in prior downturns," Rogers says. "People usually have some cushioning to ride it out, but we're finding that because of the unemployment rate, and to the extent that people are out of work for a number of months, they can't really afford to keep their units." However, Integra notes that multifamily is moving toward stabilization.
Integra's survey, which polled 59 of the company's managing directors across the US, also reflects the distress in the marketplace. Sixty-seven percent of Integra's valuation assignments in the West are classified as distressed, and 62% of its assignments in the South. Faring better are the East Central regions with distress levels of 35% and 47%, respectively.
As for when values will begin to turn positive again, Rogers says it boils down to one word: jobs. He says the extent of the Obama administration's focus on jobs creation, as well as the success of the administration's efforts, will help determine the rate at which employment begins to come back.
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Paul Bubny
Paul Bubny is managing editor of Real Estate Forum and GlobeSt.com. He has been reporting on business since 1988 and on commercial real estate since 2007. He is based at ALM Real Estate Media Group's offices in New York City.
