Sept. 15 (Bloomberg) — The U.S. commercial real estate market is unlikely to recover before 2012 and office rents in New York and San Francisco may drop 20 percent through next year, a survey of property investors found.

Suburban office rents could fall as much as 20 percent, while downtown office rents may decline about 10 percent, according to the quarterly PricewaterhouseCoopers Korpacz Real Estate Investor Survey, released today.

“The biggest problem is that commercial real estate lags what happens in the economy,” Susan Smith, director of PricewaterhouseCoopers’ real estate advisory service, said in an interview. “Companies are looking for ways to cut costs, many are continuing to reduce workers and are continuing to reduce their space needs.”

Commercial property values in the U.S. have plummeted 36 percent since peaking in 2007, as mortgage losses forced banks to restrict lending. That has caused sales volume to plunge as would-be buyers await defaults by investors who relied on debt to purchase properties between 2005 and 2007, when prices were soaring.

This is the first time in the 22-year history of the survey that investors in a majority of office markets say they expect values to fall, Smith said.

Potential commercial real-estate buyers told Pricewaterhouse they expect a wave of foreclosures on debt- ridden property owners next year, and are disappointed that more haven’t been forthcoming.

Banking on Recovery

Lenders are extending delinquent landlords’ payment deadlines while replenishing their capital reserves in hopes that an economic recovery will boost property values and mitigate mortgage losses, she said.

“It’s a very tricky game to play,” Smith said. If the economy doesn’t improve, banks could be “left with very few alternatives.”

On the other hand, “if the banks are right, there is going to be only a very limited number of distressed sale opportunities.”

The 115 real estate firms surveyed said they expect prices to fall or stay the same for at least the next six months in all markets and building types. Office rents could decline as much as 15 percent in Phoenix, and 10 percent in Boston, Denver, Chicago, Los Angeles and San Diego.

Strip malls built around such big-box stores as Wal-Mart, Home Depot and Target could see rent declines of as much as 10 percent, with regional mall rents falling 5 percent.

Investors expect rental apartments to lead a recovery starting next year and continuing through 2012, according to the survey. A lack of construction means supply will stay static while demand rises due to immigration, retiring baby boomers and the transition of boomers’ children from college to the workforce, Smith said.

To contact the reporter on this story: David M. Levitt in New York at [email protected]

To contact the editor responsible for this story: Alan Mirabella at [email protected]