Report: Sluggish Sales Likely to Continue

This imbalance between the supply of assets on the market and demand from investors "is likely to only worsen over the near term, since behind the statistics are sellers that are rapidly morphing from pressuredto distressed while buyers are content to wait," the RCA report states. Among the reasons for the sagging sales are that buyers still perceive the prices as too high and they also feel little pressure to buy now because they believe that prices will fall further. "In this climate, buyers would rather be too late than risk pulling the deal trigger too early," the RCA study points out. Geographically, it says that the imbalance between sellers and buyers is most pronounced in the West, especially in Los Angeles and Orange counties. Washington, DC "appears to be the only major market where investor demand may outweigh offerings," RCA notes.

Some likelihood exists, however, that the office sales logjam will break or at least loosen a bit. The number of distressed sellers is rising, and that group of distressed owners includes many who "must sell at whatever price the market will bear," the RCA analysis points out. "Distressed sellers not only could break the logjam that has stalled transactions but could alsolead to even lower pricing levels," it points out. Relatively few such sales have closed thus far, but distressed sellers "could soon dominate transactions," according to the RCA report.

The RCA report also points out that the commercial real estate markets, which fared better than the single-family housing market that the start of the recession, may ultimately fare worse. The office sector and other commercial property sectors in general were not overbuilt like the single-family home market, so investors continued to pour money into commercial properties even when the housing market began its slide. "That last hurrah is now coming back to haunt the industry and maycause the commercial downturn to be more severe than the residential one," according to the RCA analysis. It points out that prices are now falling at similar rates in both the commercial and residential sectors, down approximately 17% year-over-year.

With sales volume for commercial properties down 80% on a year-over-year basis for February, RCA also notes that the number of large transactions is dwindling as well. Among the few large deals during the month was the New York Times Co.'s sale of its portion of its headquarters building at 620 Eighth Ave. to W.P. Carey & Co. and two affiliates in a $225-million sale-leaseback. The Times Co. plans to use proceeds from the sale to pay down debt.