For the second straight month, US commercial property prices fell. Though the country’s economy grew, prices are being held back by the number of distressed properties still on the market. Learn more about this by reading the full PropertyWire article.
US commercial property prices slipped for the second straight month in January, as distressed real estate sales weighed on values, according to Moody’s Investors Service.
The Moody’s/REAL Commercial Property Price Index fell 1.2% from the previous month and 4.3% from a year earlier. It’s up 4.2% from an eight year low in August, Moody’s said in a statement.
The US economy grew at a 2.8% annual rate in the fourth quarter, helping boost demand for office, retail and industrial space and apartments. Price increases are being held back by the number of distressed properties on the market, said Christopher Cornell, an economist at Moody’s Analytics in West Chester, Pennsylvania.
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‘Choppiness in the CPPI is starting to subside as the bottoming process that started in the fourth quarter of 2009 continues,’ said Tad Philipp, director of commercial real estate research at Moody’s.
‘However, some choppiness will remain as the share of distressed transactions continues to be elevated,’ he added.
During the commercial real estate boom, many investors bought property with high levels of debt. The recession led to rising vacancies and falling values, making it difficult for landlords to refinance. The delinquency rate on loans packaged and sold in commercial mortgage backed securities rose to a record 9.2% in February, according to Moody’s.
‘Most demand drivers for commercial real estate have reached bottom, including office-using employment. The underlying demand for commercial real estate has begun its turnaround, but you’re not going to see much price appreciation until the slack in supply is taken up,’ Cornell explained.
Investors are becoming more confident about buying commercial property as the economy grows, according to a survey conducted by PricewaterhouseCoopers LLP’s New York based office.
‘Signs of recovery are boosting optimism among owners and buyers for 2011. The pace at which the US economy is improving, however, has been slow and uneven at best,’ the report said.
Prices for investment grade properties in the US fell 1.1%in January from the previous month, according to the latest figures from Co Star Group, a real estate data service based in Washington. Values were up 11% from January 2010 and are now down 33% from the peak in June 2007, according to the company.
CoStar, unlike Moody’s, tracks transactions of less than $2.5 million. CoStar also limits its index to class A and B offices, the highest quality buildings, retail and industrial properties built since 1990 and multifamily buildings of 30 units or more.
While the latest report from Green Street Advisors, a real estate research company based in California, shows that commercial property values were up 1% in February compared with the previous month and 20% up from a year ago.
Green Street’s index includes deals that are in negotiation or under contract, while Moody’s tracks completed sales.
This article was republished with permission from PropertyWire.
