US - Investor sentiment around North American commercial real estate has plummeted following further weakening of the industry, according to PricewaterhouseCoopers.

Its fourth quarter Korpacz Real Estate Investor Survey revealed investors were becoming increasingly anxious about the near-term performance of the property industry and used much lower market rent growth rate assumptions in their valuation analyses.

The survey, which quizzed a cross-section of major institutional equity real estate investors and covered 29 markets, found initial-year market rent change rates have declined by an average of 175 basis points during the past year. Office markets in Manhatten, Denver and San Francisco registered the steepest annual drop.

 "One message came across loud and clear from investors: the nation's harsh economic environment will continue to negatively impact commercial real estate values throughout 2009," said Tim Conlon, partner and US real estate sector leader for PricewaterhouseCoopers.

In the public sector, Real Estate Investment Trusts (REITs) have also been putting their acquisitions and developments on hold and decimating their share prices, while some are being forced to sell their assets as a result of their debt burden - a trend which is set to continue into 2009, according to PricewaterhouseCoopers.

Worse-than-expected job losses in the retail, services and professional and business service sectors are expected to further damage property values and fundamentals, said Conlon.

PricewaterhouseCoopers' research found overall capitalisation rates are expected to increase by an average of 45 basis points over the next six months for all of the markets included in the survey.

Sales activity, which has dropped 75% year-on-year, is expected to remain subdued in the main property sectors  - apartment, offices, retail and industrial - until liquidity returns to the market and the bid-pricing gap closes.

The report found all types of investors are seeking refuge in cash because of the volatile market conditions, and there are concerns that real estate may cease being a favoured asset class.

However, the report says owners must hang onto their assets until a market correction takes place.

Susan Smith, editor-in-chief of PricewaterhouseCoopers Korpacz Real Estate Investor Survey and a director in the firm's real estate advisory services group, said: "The key to weathering this storm will be finding ways to mitigate value losses while holding onto assets until the inevitable recovery."

"Investors realize that real estate needs to again be viewed as a tangible asset where location, quality, and tenancy are keys to driving and sustaining value," she added.

Investors predicted warehouse and multifamily sectors to recover before the retail and office sectors.