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CBRE Econometric Advisors Sees Q3 2009 as Market Bottom for U.S. Commercial Real Estate Total Returns

Returns Expected to Remain Negative in 2010, With Positive Value Growth Foreseen in 2011

Boston – January 11, 2010 – The downward slide in total returns from U.S. commercial real estate reached bottom in Q3 2009, but returns will remain in negative territory for most of 2010 before resuming positive growth in 2011, according to a new analysis from CBRE Econometric Advisors (CBRE-EA, formerly CBRE Torto Wheaton). 

As measured by the NCREIF1 Property Index, total returns have declined 23% for office, 21% for industrial, 15% for retail, and 23% for multifamily compared with peak levels in 2007. CBRE-EA believes that these declines constitute the bottom of the current cycle across all property sectors, and in the firm’s base-case (most likely) scenario, returns are expected to improve, but remain in negative territory throughout 2010.  By the end of 2011, CBRE-EA sees commercial property producing total returns of 3% to 11%.

Total returns comprise the change in the market value of commercial property (appreciation or depreciation), plus cash yields (income).   

Although total returns have reached their nadir, commercial property values will decline further due to the weakness in the underlying economy.  Peak-to-trough value declines are expected to be in the range of 30% to 53% under CBRE-EA’s base-case scenario.  Using NCREIF data, CBRE-EA believes commercial property has already fallen in value by between two-thirds and one-half of the expected peak-to trough correction. The effect of continued property value declines in 2010 will be mitigated by positive income returns from commercial property.

In its base-case forecast, CBRE-EA projects a further 60 to 100 basis point (bps) increase in cap rates (from the current levels of 6.35% for office, 6.96% industrial, and 6.54% retail, and 5.39% for multifamily) to mid 2011 across all property types. Cap rates are then expected to slowly decrease to levels seen in 2005 and 2006 by 2012.

“From a total return perspective, the worst is behind the commercial real estate sector,” said Serguei Chervachidze, Capital Markets Economist, CBRE-EA. “Economic and financial factors will continue to put downward pressure on property values, resulting in negative returns in 2010.  However, there are early signs of positive dynamics in asset values for some prime properties across the US, and we can foresee positive value growth resuming in 2011.”

Among property types:

  • Industrial real estate will face a steeper drop compared with other property sectors driven by expected deterioration in income.
  • Office assets will also be affected by income deterioration, but to a lesser extent then industrial real estate.
  • While not showing drops as large as office or industrial, retail will still exhibit slow growth rates associated with lackluster appreciation returns.
  • The multifamily sector will also experience a sharp downward correction in asset values, but will resume strong value growth in 2011.

CBRE-EA noted that NCREIF data is appraisal based and as such, often lags changes in market activity by as much as a year. As a result, actual growth in property values may begin as soon as 2010.

To speak with Mr. Chervachidze or another CBRE Econometric Advisors expert, please contact Robert McGrath (212.984.8267 or

1 The NCREIF ( National Council of Real Estate Investment Fiduciaries) Property Index is a quarterly time series composite total rate of return measure of investment performance of a very large pool of individual commercial real estate properties acquired in the private market for investment purposes only.

About CB Richard Ellis
CB Richard Ellis Group, Inc. (NYSE:CBG), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real estate services firm (in terms of 2008 revenue).  The Company has approximately 30,000 employees (excluding affiliates), and serves real estate owners, investors and occupiers through more than 300 offices (excluding affiliates) worldwide. CB Richard Ellis offers strategic advice and execution for property sales and leasing; corporate services; property, facilities and project management; mortgage banking; appraisal and valuation; development services; investment management; and research and consulting. CB Richard Ellis has been named a BusinessWeek 50 “best in class” company for three years in a row. Please visit our Web site at




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