Download a PDF of the 2008 Results

The results of DLA Piper’s “State of the Market” Real Estate Survey are analyzed and released in conjunction with the firm’s Global Real Estate Summit.

“Bigger than the savings and loan crisis.”

The recent tidal wave of unprecedented events on Wall Street – including Lehman Brothers’ bankruptcy, the federal government’s bailout of AIG, Fannie Mae and Freddie Mac, and Bank of America’s purchase of Merrill Lynch – is creating a sea change in the markets. Accordingly, respondents to DLA Piper’s 2008 “State of the Market” Real Estate Survey report that the current credit crisis has now had a greater impact on the US commercial real estate market than the devastating savings and loan crisis of the late ‘80s and early ‘90s.

Simply put, financing – or the lack thereof – remains the chief concern of respondents as they flooded the survey with concerns over the availability of credit and debt.

Frustrated with the ongoing credit crisis that continues to reshape the financial markets, real estate executives are expressing a new record level of bearish sentiment as they continue to be reminded of the cyclical nature of the industry after nearly a decade of prosperity. However, even with the expected recovery further out than many would have predicted even six months ago, respondents still see opportunity in the current market environment.

Highlights of DLA Piper’s "State of the Market" Real Estate Survey include:

• Following the recent developments at Lehman Brothers, AIG and Merrill Lynch, the majority of respondents (60 percent) report that the current credit crisis has now eclipsed the savings and loan crisis of the late ‘80s and early ‘90s as the event with the single-greatest impact on the commercial real estate industry during the past 20 years.
  
  
• Interestingly, prior to the events of early September, the majority of respondents said that the savings and loan crisis was the event with the greatest impact on the real estate industry. Sentiment changed in a follow-up survey conducted after Lehman Brothers filed for bankruptcy. (Please see methodology for further details on this follow-up survey).
  
  
• Building upon this sentiment, 8 out of 10 respondents do not believe that the recent developments concerning Lehman Brothers, AIG and Merrill Lynch signal the “bottom” of the cycle, nor do respondents think they provide the “first sign of light” at the end of the credit crisis tunnel.
  
  
• In terms of the Lehman Brothers’ bankruptcy, the overwhelming majority of respondents (96 percent) agree with the federal government’s decision not to bail out the prominent investment bank.
  
  
• A record 9 out of 10 respondents (90 percent) describe themselves as “bearish,” up from 68 percent in October 2007 when DLA Piper last surveyed the market in its 2007 “Credit Crunch” Real Estate Survey, and of these respondents, 71 percent attribute this to continued fallout from the credit crisis.
  
  
• Consistent with this outlook, the overwhelming majority of industry executives have concluded that the markets will not improve in 2009: The majority of respondents (62 percent) don’t expect the real estate markets to stabilize until 2010 and 22 percent don’t expect to see stabilization until 2011.
  
  
• Two out of three respondents think that John McCain, if elected, is likely to have a more favorable impact on the commercial real estate industry than Barack Obama.
  
  
• The majority of respondents don’t expect securitized lending to recover and return to its previous market levels until at least 2011, while 16 percent reported that securitized lending will never again reach its prior levels.
  
  
• The majority of all respondents (51 percent) expect foreign investors to be the most active in the US during the next year and, consistent with that conclusion, nearly one in five respondents has engaged in a transaction involving investments from sovereign-wealth funds.
  
  
• In sharp contrast to DLA Piper’s 2007 “State of the Market” Real Estate Survey, cap rates and interest rates are expected to move in parallel during the next six months, ending one of the industry’s most significant eras of cap rate compression. 60 percent of respondents think interest rates are headed up while 63 percent of respondents think cap rates are also headed up.
  
  
• Hotel and retail investment opportunities have fallen out of favor and rank as the least attractive investments during the next 12 months, while multifamily (50 percent) ranks as the most attractive investment opportunity by a wide margin over the downtown office sector (19 percent).