US commercial real estate prices may fall as much as 42 per cent from their previous high and vacancy rates may rise further, Goldman Sachs Group said at the weekend.
Prices may drop another 17 per cent through the fourth quarter of next year, Goldman said. The firm previously predicted a 24-per-cent peak-to-trough decline.
Scarce credit and the recession are pushing up vacancy rates, allowing rents to declined and putting pressure on holders of commericial mortgages, Goldman said.
"The downturn in the US commercial real estate sector has been even more dramatic than we antiipated," the researchers said.
"Given market illiquidity, the risk of forced sales, substantial downward momentum in prices and the tendency for financial assets to overshoot fair values at both the peak and the trought, we believe both appraisal and transaction prices may fall further from here."
They expect $287 billion *B9.6 trillion) of losses on commercial mortgages, up from a previous estimate of $183 billion. Almost all of the increase is due to the addition of construction loans to the estimate. The overall number is 8.2 per cent of commercial property loans outstanding at the end of last year.
Vacancy rates have risen 35 per cent across all property types, the report said. or twice what the firm projected in February 2008. The rate could go higher, Goldman said.
"Demand will be insufficient to soak up space that is coming on stream through 2010," the export says. "This will drive vacancy rates higher and exert additional pressure on rent growth" and reduce revenue relative to loan payments, likely leading to defaults.
Goldman recommended avoiding investing in regional banks with large commercial real estate portfolios, in favour of" consumerfocused large banks" such aw JPMorgan Chase and Bank of America.
It also recommended "very selective exposure to real estate investment trusts with strong balance sheets-naming mall REIT Taubman Centres as an example.
Subscribe to:
Post Comments (Atom)
No comments:
Post a Comment