Slow Construction, Absorption Drives CRE Stable Performance

At over 67 for seven consecutive quarters, the composite score for the U.S. commercial property market remained stable in 2012 and suggests the market will continue to remain stable.

Moreover, according to Moody's Investors Service's Red-Yellow-Green quarterly property assessment that scores CRE markets on a scale of 0 to 100, the outlook is largely homogeneous  for most major U.S. property markets.

The slow pace of both construction and absorption, “which, respectively, represent the supply and demand components of real estate," said Keith Banhazl, Moody's VP and senior credit officer, indicate a stable market in the fourth quarter and beyond.

The five highest scoring markets in the U.S. are San Francisco at 79, Los Angeles at 79, Honolulu at 78, Orange County, Calif., at 76 and San Diego at 74.

Among the nation’s top 10 cities with the highest dollar volume of securitized CRE loans were Los Angeles at 79, up from 77 in the previous quarter, San Francisco at 79, up from 78, and Houston up to 71 from 69. Meanwhile, New York and Miami, both of which scored 73, marked a drop from 75 and 74, respectively.

Washington, Chicago, Dallas, Philadelphia and Atlanta also made it to the top ten CMBS.

This report is based on data from the third quarter of 2012. Report scores are based on 388 individual market scores at approximately 55 markets per property sector. Red stands for scores of 0-33, Yellow for 34-66 and Green for 67-100.

Among property types, the same as last quarter, the multifamily market remained the highest-scoring sector at 85, “as supply exceeded forecast demand by 0.5%,” Moody’s said.

Overall California metros were among top performers in five of the seven property sectors monitored by the report with Los Angeles for industrial and limited-service hotel, Oakland for multifamily and San Francisco for retail and CBD office.