NEW York City commercial real estate transactions plunged 61 percent this year to the end of October.
About US$17 billion of transactions have closed so far and the market is headed for its worst year since 2004, according to data from Real Capital Analytics of New York. Sellers have made 237 deals of US$5 million or more, a four-year low in a market that posted a record US$51 billion in sales in 2007.
"The banks are not lending, and most of them are saying we're done for the year," said Scott Latham, executive vice president for New York investment sales at Cushman & Wakefield Inc, the largest closely held commercial brokerage. "In all likelihood, you will see next to no transactions between now and the end of the year."
The property recession that began in housing during 2006 is spreading to the commercial market. About 85 percent of domestic banks tightened lending standards on commercial and industrial loans to large and mid-size firms in the past three months, the highest since the Federal Reserve's Senior Loan Officer Survey began in 1991, the Fed said.
The office market will likely get worse in 2009 and may not improve for at least another year, said Andrew Simon, executive managing director for the New York City office of NAI Global, a worldwide network of 325 independent commercial property brokerages. The bankruptcy of Lehman Brothers, the takeover of Merrill Lynch and the city comptroller's forecast that New York may lose as many as 165,000 jobs are also weighing on the market.
"I don't think the first half of 2009 is going to be very rosy," said Simon. "I believe you're talking about a year from now before you see more movement toward normalcy.
He added: "People are going to be waiting on the sidelines until a floor is established. People aren't going to sell unless they have to sell. Unless that floor is established you will not see significant sales."
Investors have been dumping real estate investment trusts focusing on offices.
The 14-member Bloomberg Office REIT Index lost 43 percent in the 12 months to the end of October, led by Maguire Properties and SL Green Realty, which together control almost 50 million square feet of office space in Los Angeles and New York.
SL Green, the biggest owner of Manhattan office buildings, dropped 65 percent in the year to the end of October. Maguire, the largest owner of downtown Los Angeles office towers, has plunged 87 percent.