CBRE's new report, "Global Insight," says that thus far thebiggest impact on commercial real estate from the economic downturnhas been that transaction volume has slowed "dramatically over thepast four quarters." While investment activity is off in every partof the world, "the decline is most severe in the Americas,especially in the US," notes the report, co-authored by RaymondTorto, global chief economist for CBRE, and Nick Axford, head ofEMEA Research & Consulting.

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It is stressed in the new study that some conclusions don'tnecessarily apply to the whole market. It is pointed out that, inthe current market environment, most properties selling right noware better-quality assets, which tend to sell at lower cap ratesand higher prices, which doesn't necessarily reflect what is goingon the general market--where the trend is toward lower prices andhigher cap rates.

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Nonetheless, the report says, property owners may fare well inthe coming years as leases roll over. Even in a slowing economy,tenants will find that their existing rents are below market andwill face a rising rents. That will mean "property owners will seeincreased net operating income," the authors conclude.

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The CBRE report compares and contrasts the effect of theeconomic slowing on building sales both in the US and Europe. Onboth sides of the Atlantic, the authors say, there is a"substantial gap" between what sellers are asking and buyers arewilling to pay. The present bid-ask gap continues because "sellersdo not feel a need to adjust their asking price since they havelittle desire to sell into this environment," they explain.

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Another factor that keeps sellers from dropping prices is thatthe cash flows on most quality properties are holding steadybecause occupancies remain high and a high proportion of tenantsare in leases that will not roll over for quite some time, at whichtime market rents may be on the rise again. Only owners with debtdistress--debt rolling on properties whose incomes cannot meet somekind of restructuring--are in situations where they may be forcedto sell or restructure as the only solution, according to thereport.

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Torto and Axford point out that the conclusions aregeneralizations, with some specific markets in both the US andEurope likely to perform better and others worse in the changingeconomy. "Some markets, particularly in the Midwest, are sufferingfrom the auto industry's woes, and markets that were heavily drivenby local housing-market expansion, particularly on the West Coastand Florida, are now being negatively impacted by the contractionof single-family home prices and weakened economies," they write.In Europe, the UK, Spain and Ireland are the most exposed to theweakening residential market, they conclude.

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