2010 Commercial Real Estate Market - U.S. averages

Apartment occupancy is forecasted to drop to a cyclical low of 91.7% in 2010 from 94.3% in 2007, which represents a 2.8% decrease and is less severe than the previous apartment cycle. In the 2000-2004 cycle, the cyclical low of 93.3% represented a peak to trough drop in occupancy of 3.6%.  Effective apartment rents are forecasted to rise to $1,030/unit in 2010 from $1,027/unit in 2007, which is an 8% decrease after adjusting for inflation. This is less than the 15.9% inflation adjusted decrease observed in the 2000 to 2004 period.


Office occupancy is forecasted to drop to a cyclical low of 81.9% in 2010 from 87.4% in 2007, which represents a 6.3% decrease and is less severe than the last office cycle. In the 1980 to 1986 cycle, the cyclical low of 80.7% represented a peak to trough drop in occupancy of 13.2%, which was largely driven by excess supply.  Office rents are forecasted to drop to $21.26/sf in 2010 from $24.59/sf in 2007, which is a 20.7% decrease after adjusting for inflation. This is modestly higher than the 19.5% inflation adjusted decrease observed in the 1980 to 1986 period. 



Industrial occupancy is forecasted to drop to a cyclical low of 88% in 2010 from 90.5% in 2007, which is a 2.8% decrease and is less severe than the last industrial cycle. In the 1980-1987 cycle, the cyclical low of 89.4% represented a peak to trough drop in occupancy of 3.7%.  Industrial rents are forecasted to drop to
$4.33/sf in 2010 from $4.7/sf in 2007, which is a 15.5% decrease after adjusting for inflation. This is greater than the 11.6% inflation adjusted decrease observed in the 1980 to 1987 period.


Retail Occupancy is forecasted to drop to a cyclical low of 87.5% in 2011 from 92.5% in 2007, which represents a 5.4% decrease and is more severe than the previous retail cycle. In the 1980-1987 cycle, the cyclical low of 89.6% represented a peak to trough drop in occupancy of 3.8%  Retail rents are forecasted to drop to a $16.21/sf in 2011 from $18.58/sf in 2007, which is a 15.4% decrease after adjusting
for inflation. This is more than the 13.7% inflation adjusted decrease observed in the 1980 to 1987 period.




 Hotel Occupancy has declined by 8.6%, which is worse than the 6.5% drop in the 2000-2003 cycle. Occupancy is expected to stabilize in 2010, and should start growing in 2011.  ADR (Average Daily Rate) has dropped by about 9%, and is forecasted to drop slightly further, which is worse than the 5% decrease in the 2000–2003 cycle.  RevPAR (defined as ADR × Occupancy) has declined by 16.7%, which is worse

than the 10.3% drop in RevPAR during the 2000–2003 cycle. RevPAR may decline further before stabilizing in 2011. The drop in occupancy has been about the same for Full and Limited Service hotels. However, ADR declines have been much more pronounced in the luxury sector.