NEW YORK: Commercial real estate prices may fall as much as 55% from October 2007’s peak and the recovery will be slow amid rising unemployment and tepid consumer spending, Moody’s Investors Service said.

Falling prices are likely to spur further ratings cuts for subordinate commercial mortgage-backed securities sold from 2006 to 2008, Moody’s said in a report on Nov 23. Ratings on the most senior bonds are likely to remain at current levels.

“Cash flows for properties with short-term lease structures, such as hotels and multifamily, will likely hit bottom in 2010 or early 2011,” Moody’s managing director Nick Levidy said. “The bottom for office, retail and industrial properties will take longer to form.”

CMBS sales fell to US$12.2 billion (RM41.34 billion) last year from a record US$237 billion in 2007, removing a source of financing for real estate owners and buyers, JPMorgan Chase & Co said. Commercial property prices have dropped 42.9% so far, Moody’s said.

Office rents and occupancy rates should stabilise in 2011 once employment rates begin to rise and tenants start considering long-term space needs. Improvements in loan availability could bring our more bidders, which “could quickly drive prices higher”, the report said.

A recovery in retail may take longer even though fewer stores have closed than expected, Moody’s said. About 3,840 stores have closed this year through September, less than predictions of 10,000 to 12,000, Moody’s said, citing Retail Traffic Magazine.

Merchants have renegotiated leases, reducing cash to cover landlords’ mortgage payments, while keeping properties “vibrant by reducing vacant storefronts,” Levidy wrote.

Multifamily vacancies should peak within the next few months, with rent growth remaining stalled until 2011, Moody’s said.

“Recovery will be slow and a return to pre-recession levels will be protracted,” Levidy wrote.

For hotels, revenue per available room is likely to return to 2004-05 levels, he wrote. The US lodging market is likely to take about four years to recover, as it did following the 9/11 catastrophe.

CMBS losses may range from 2% to 5%, depending on the year the deals were made, Moody’s said. Junior loans could be downgraded by as much as three levels. – Bloomberg LP