IPD 2009 Q4

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San Francisco Los Angeles New York United States Chicago Washington

2009

US CRE: 2009 versus peak-to-trough value writedowns

2009 Peak-to-trough

US commercial real estate suffers record worst fall, says IPD

Chicago, 17th February 2010: US commercial real estate suffered its worst annual

capital return on record1, according to theIPD US Quarterly Property Indicator, which

fell -23.9% in 2009, taking the total capital decline to -33.4% from December 2007

when real estate values were at their peak.

While the pace of market value decline eased over the final quarter, continued cap rate

pressure together with weakening rental fundamentals is curbing optimism that 2010 is

the year of recovery. Cap rates softened by a further 140 basis points over the year to

end 2009 at 7.1%, the highest level in six years.

Five City Analysis

In an analysis of commercial real estate in five major cities in the US, IPD shows that

New York, Washington and Chicago all suffered slightly less severe market value

write-downs than the broader US market. Conversely, the West Coast markets of LAand San Francisco have fallen further than the national average.

Source: IPD US Quarterly Property Indicator

IPD Index StatementQ4 2009 US Quarterly Property Indicator
http://www.ipd.com/GlobalNetwork/IPDinNorthAmerica/US/tabid/472/Default.aspxhttp://www.ipd.com/GlobalNetwork/IPDinNorthAmerica/US/tabid/472/Default.aspxhttp://www.ipd.com/OurProducts/Indices/US/USQuarterlyPropertyIndicator/tabid/2158/Default.aspxhttp://www.ipd.com/OurProducts/Indices/US/USQuarterlyPropertyIndicator/tabid/2158/Default.aspxhttp://www.ipd.com/OurProducts/Indices/US/USQuarterlyPropertyIndicator/tabid/2158/Default.aspxhttp://www.ipd.com/OurProducts/Indices/US/USQuarterlyPropertyIndicator/tabid/2158/Default.aspxhttp://www.ipd.com/GlobalNetwork/IPDinNorthAmerica/US/tabid/472/Default.aspx

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Over the entire peak-to-trough, New York has suffered a steeper re-pricing cycle than

the US average, falling by 34.3%. The chart above shows the five cities annual capital

return with the full peak-to-trough decline. San Francisco commercial real estate

market values declined the most over the quarter (-4.1%), the year (-27.5%) as well as

overall peak-to-trough (-39.4%). The citys cap rates are now equal to the national

average (7.1%).

In the five city analysis, Washingtons market values fell 180 basis points less than the

broader US market over the full year (-22.1%) and by 200 basis points peak-to-

trough (-31.6%). The city which delivered the shallowest quarterly market value decline

was Chicago (-2.1%).

2010 in many ways is a crunch year for US commercial real estate, explains Simon

Fairchild, Managing Director for North America at IPD.The extend and pretend

policies banks adopted last year to stave off loan-to-value covenant breaches may

have curbed the tide of rising loan delinquencies in the short-term, but lenders and

investors need to always retain a vigilant eye on the health of real estate

fundamentals. One focus this year will be to track signs of stress in occupier markets;

particularly in cities with rising vacancy rates.

East-West Coast Divide

Over 2009, there was a distinct geographic trend in the pace of capital depreciation,

with the East Coast outperforming the West Coast in all four main sectors offices,

retail, industrial and apartments.

In addition, the East Coast delivered the lowest geographic capital decline,

outperforming Mid West and the South, in retail, offices and industrials. In the

apartment sector, the Mid West returned the shallowest annual capital decline. See

chart below (numbers available upon request).

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US East-West Coast annual 2009 capital returns

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East West US East West US East West US East West US

Retail Offices Industrial Apartments

Source: IPD US Quarterly Property Indicator

Investment Returns

US commercial real estate income returns were robust in 2009 at 6.6%, partially

offsetting the falls in value and contributing to an annual total return of -18.7%. At the

sector level, the strongest performer was retail, which outperformed the all property

average by 390 basis points, returning -14.8%, while at the other end of the spectrum

offices underperformed the wider market by 220 basis points, delivering -20.9%. The

industrial and apartment sectors returned -20.2% and -17.0% for 2009, respectively.

Over three, five and 10 year periods, US commercial real estate has returned -4.9%,

3.3% and 6.3% per annum.

Global Comparisons

The -23.9% 2009 market value decline in US commercial real estate compares with a

-3.8% decline in theUK, buoyed by a fourth quarter rally which saw British property

markets climb by a record 8.1%. The historically stableNetherlandsreal estate market

fell by -5.6% over 2009, while the worlds worst hit market,Ireland, fell -28.9%.
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Canadas annual capital and total returns will be published on Thursday, while IPD is

to publish the annual indices for Sweden, Denmark, Austria and Finland next week.

----------------------------------------------------ENDS---------------------------------------------------

Notes to editors:

1 This takes into account IPDs US data, which began in 1999, and NPI, which dates

back to 1978.

The IPD US Quarterly Property Indicator monitors the trends in underlying market

value and returns of $76.5bn of assets held by the leading real estate fund managers

in the US. The methodology ensures that only assets revalued by the end of each

quarter are included. This ensures that price movements over each quarter are

accurately reflected in headline all property, sector and segment level, which is acutely

important in rapidly declining markets.

IPD is a global information business, dedicated to the objective measurement of

commercial real estate performance. As the worlds number one provider of real

estate performance analysis for funds, investors, managers and occupiers, IPD offers

a full range of services including research, reporting, benchmarking, conferences and

indices. Operating in over 20 countries including the US, most of Europe, Japan, South

Africa, Canada, Australia and New Zealand, its indices are the basis for the developing

commercial property derivatives market, and the most authoritative measures of real

estate returns worldwide. For further information visitwww.ipd.com

For further information contact:

Jani Venter, US Commercial Development at IPD

347 413 2236,[email protected]

James Wallace, Global Press Officer

+44 (0) 20 7336 4778,[email protected]
http://www.ipd.com/http://www.ipd.com/http://www.ipd.com/mailto:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]://www.ipd.com/

IPD 2009 Q4

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