width=348NEW YORK - U.S. commercial real estate investors may have to wait until next year to see their returns start to grow, as returns will likely remain in negative territory this year, according to the research arm of real estate services company CB Richard Ellis Group Inc.

The worst is behind us because (values) won't be dropping as fast, Serguei Chervachidze, CBRE Econometric Advisors (CBRE-EA) Capital Markets economist told Reuters. That translates into total returns as well.

The greatest declines probably occurred in the third-quarter 2009, although fourth-quarter returns are not yet available, he said.

CBRE-EA based its forecasts on the NCREIF Property Index, compiled by the National Council of Real Estate Investment Fiduciaries, an industry group representing pension fund investors and advisers. The index calculates total rates of quarterly returns based on a very large pool of privately held commercial real estate properties.

So far, total returns -- net operating income plus the change of the value of a portfolio of property over a year -- have fallen by double digits since the peak levels seen near the end of 2007.

For U.S. office properties, total returns since then have fallen 23 percent, for warehouse and distribution centers returns have fallen 21 percent. Retail property returns are down 15 percent so far, and apartment building returns are down 23 percent, according to the NCREIF index.

Using the index, CBRE-EA said that returns, under its most likely scenario, should remain negative throughout 2010 and turn 3 percent to 11 percent positive in 2011.

It sees values ultimately falling 30 percent to 53 percent from the peak in the last quarter of 2007. Factoring in the slide since then, values are about one-third to halfway there.

Stronger, positive income returns from rents generated by commercial property should mitigate somewhat property value declines this year, CBRE-EA said.

Capitalization or cap rates, which move inversely to prices, are expected to rise another 0.60 to 1.0 percentage point into mid 2011, CBRE-EA projects under its base-case forecast. Currently cap rates for office properties are about 6.35 percent, 6.96 percent for warehouse and distribution centers, 6.54 percent for retail properties and 5.39 percent for apartment buildings.

It see cap rates slowly falling -- or values slowing rising -- to 2005 and 2006 levels by 2012.

(Reporting by Ilaina Jonas; Editing Bernard Orr)