Cash investors seeking to pick up quality assets at or near cyclical lows might begin funneling capital back into the commercial real estate markets by the end of next year, according to a report released last week by PricewaterhouseCoopers LLP and the Urban Land Institute (ULI).

“Our report participants find that a sense of nervous euphoria is growing among liquid investors who can make all-cash purchases,” said Stephen Blank, ULI senior resident fellow for real estate finance. “Those that are patient, daring and selective could score generational bargains on premium properties from both distressed sellers and banks that are clearing out unwanted bad loan and real estate owned portfolios,” he said.

Survey respondents for the Emerging Trends in Real Estate 2010 Forecast predict that commercial real estate vacancies will continue to increase as rents fall among all property sectors before the market bottoms out next year.

Among the property types, the survey found declines or nearly record lows in investment sentiment for almost every property type. According to the report, development prospects are “largely dead,” office, retail and hotels have sunk to “abysmal” levels, and warehouse and apartments scored “modestly poor.”

The report also indicated that declining property values of 40 percent to 50 percent off 2007 market peaks are expected.

And though the debt markets are expected to rebound next year, the report contends, it will remain “far from normalized” in the wake of unprecedented de-leveraging and any lending will be conservative and expensive.

“Only cash buyers will benefit from the emerging opportunities,” said Tim Conlon of PricewaterhouseCoopers. “Investors will need to be patient and transaction trigger points will be improving job numbers, visibility into asset pricing and stepped-up tenant deals. Equity investors will need to focus on quality assets and expect to hold for at least a five- to seven-year period during the recovery, allowing fundamentals to slowly improve.”

Survey participants believe markets performing well before the crash should fare better coming out of the recession and that investors will favor “global gateway markets” on the East and West Coasts.