I love this technique—the analyst actually went back and marked up their 2009 forecast at the end of the year with what actually happened.
The downturn in San Francisco and Seattle, two traditionally downturn-resistant markets, was greater than forecast.
Pricing dropped 40% from its 2007 peak, and is forecast to drop another 10% in 2010. NCREIF property returns were the worst in NCREIF’s 30+ year history.
The big conclusion of the markup? 2009 was the weakest year since the 1990’s—remember SURVIVE TIL ‘95? I wonder what the new mantra is…
They are predicting a quicker return to zero or positive returns in 2010 than for the 1990s downturn—driven by cash on cash returns—with income getting re-established at sustainable levels.
Employment growth is expected to turn positive this year, with below long term GDP trend growth until 2011—performance tracking below previous recoveries.
The big thing they didn’t talk about? What will the real estate banking market look like going forward? The guys that threw the gasoline on the fire in 2005-2007—Lehman, Merrill, RBS, and Bear—are all gone.
The bottom line? Commercial real estate, once viewed as a liquid, appreciating asset with the ability to carry a lot of debt as you rolled over the tenant mix, is now back to occupying its traditional role as a bond-like income producing investment with an inflation hedge.