LoopNet, Inc., which operates the largest online commercial real estate marketplace with four million members, today is announcing the results of its just-closed First Quarter 2010 LoopNet Pulse Poll. LoopNet believes that its Pulse Polls represent the largest commercial real estate industry survey conducted on a quarterly basis.
1,500 LoopNet members responded to the latest poll. LoopNet members include commercial real estate investors, brokers and owners who use the LoopNet marketplace to search for available space and investment opportunities, as well as to market available properties.
When Will the Commercial Real Estate Market Recover?
As the commercial real estate industry slowly churns along the bottom of the current cycle, LoopNet members offer mixed perspectives on the market's near-term future. According to the First Quarter 2010 LoopNet Pulse Poll, just under half of LoopNet members expect a recovery in transaction volumes in 2010, while a substantial number are expecting recovery to wait until 2012.
Specifically, 45% believe that year-over-year growth in transaction volume will resume by the end of 2010 (including a small number that believe it has already begun); a substantial 20% are expecting it to be delayed until 2012 or later. With 35% predicting a 2011 recovery, this nets out to a majority of 55% who are not expecting a recovery this year.
When cut by role, investors are slightly more pessimistic, with a median expectation of year-over-year recovery timing that is approximately one quarter later than that of brokers and owners.
We view these results as an interesting complement to recent data from Real Capital Analytics, which showed a material 40% increase in transaction volume in Q4 2009 vs. Q3 2009. Although Q4 was still down 24% vs. the prior year, it marked a substantial improvement from the 65% year-over-year decline seen, on average, during the first three quarters of 2009, and was the smallest year-to-year decline recorded since Q4 2007, which also suggests we are at or near the bottom of the market in terms of low transaction activity.
What are the Obstacles to Completing Transactions?
Consistent with our Fourth Quarter 2009 LoopNet Pulse Poll, access to debt financing remains the most significant obstacle to completing transactions, indicated by half (49%) of survey respondents as the #1 reason, followed by high asking prices (25%) and insufficient equity capital among buyers (18%).
While debt financing was the top choice for all three groups, the relative weighting varied by role. For brokers and owners, lack of access to debt financing was over twice as important as asking prices in explaining the dearth of transactions, while investors rated pricing as almost equally important.
Have Commercial Real Estate Asset Values Hit Bottom Yet?
While the three groups may differ on the importance of pricing as an obstacle to industry recovery, all agree that prices will continue to fall, and by a similar amount. Investors are predicting the largest decline, with an average of 13%, but they are not much more bearish than owners, who are forecasting around 10%.
It is true, however, that there is a far larger segment of owners (21%) who believe prices have already reached their lows, as compared to investors (9%) and brokers (8%).
Another interesting finding in the pricing data is that, despite the declines in pricing seen over the past year, respondents' expectations for future pricing declines remain almost unchanged. In two prior surveys, conducted in July and October of 2009, respondents expected prices to fall a further 14%. In the current survey, the number has declined only slightly to 12%.