The culprits, of course, are the frozen CMBS market and, moreimportantly, the financial crisis. Even though borrowers had beenlocked out of the debt markets for the better part of a year, Ratiusays, the industry had been performing relatively well – until thefinancial crisis hit. "That pushed us over the edge." In Q3 of 2008only $33 billion of investment sales closed, he notes. In the sameperiod last year, that figure was $110 billion. Deals that aregetting done are being financed with cash or some form ofequity.

Ratiu believes next year will be worse, with foreclosures oncommercial buildings becoming more of an issue. Also, CMBSdelinquencies, which have remained relatively low, will probablyrise next year. "There are $400 billion of commercial loans comingdue in 2009 and in an environment of low liquidity that is going toput even more pressure out there."

The report projects office vacancy rates to increase to 16.4% inQ3 of 2009 from 13.4% in Q3 of this year. Office markets with thelowest vacancies currently include New York, Honolulu and Seattle,all with vacancy rates of 9.6% or less. The highest vacancies arein Detroit, Phoenix and Dallas, with vacancies exceeding 20%.