The Real Deal New York

Stormy future for US commercial real estate, Pimco says

Report projects 5 percent drop in property values

June 21, 2016 11:06AM

Tighter regulations, a volatile debt market and low oil prices are signaling choppy waters ahead for the U.S. commercial real estate market, according to a new report by Pacific Investment Management Co.

The confluence of factors “is creating a blast of volatility for U.S. commercial real estate,” PIMCO’s report stated, according to Bloomberg News. In the report, “U.S. Real Estate: A Storm Is Brewing,” the Newport Beach, Calif.-based investment manager projected prices would slide as much as 5 percent over the next 12 months.

Prices are already dropping in New York and nationwide. Over the past three months, U.S. property values slipped 3 percent. Real estate deals in New York are projected to drop by up to 30 percent in 2016, according to Cushman & Wakefield.

In part, price growth has been stymied by high borrowing costs on commercial mortgage-backed securities. But real estate investment trusts have also staggered, and some are becoming sellers, while foreign investors are in limbo.

In particular, the Chinese government is reportedly considering controls on capital outflows while lower oil prices could slow activity from Middle Eastern investors. [Bloomberg] – E.B. Solomont

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