The strong recovery in U.S. commercial real estate prices that commenced in early 2010 continues, albeit it “has lost steam over the last three quarters,” according to Moody’s.
Month-over-month the Moody’s/RCA Commercial Property Price Indices dropped by 1.2% in July.
Price improvements were seen, however, in several market sectors both month-over-month and over the last three months.
For example, the apartment component of the CPPI increased 1% month-over-month following a
Apartments have been the best performing sector over the last three months keeping generally strong fundamentals and liquidity, up 2.3%.
Retail properties also performed well over the last three months as prices increased 1.5%, while office and industrial property markets trended flat to down.
Improvements, however, are still shaky.
In the past three months the core commercial component fell 2%. The 1.2% drop in the July CPPI also indicates improvements continue at a slower pace, analysts said.
They attribute the slowdown to two major reasons.
Historically “low financing costs that served as one of the main drivers of value growth and cap rate compression have largely played out,” noted Moody’s director of commercial real estate research, Tad Philipp. Meanwhile, income growth, recognized as the other most significant driver of market change, “has yet to fully kick in because of the persistently weak economy," he said.
These weaknesses did not appear to affect institutional investors. Commercial real estate properties owned by institutional investors outperformed the national all-property composite as measured by CPPI through July 2012.
A new analysis looking at the buyers and sellers of commercial property by institutional investors, which are defined as financial institutions, investment managers and real estate investment trusts, Moody’s said, collectively they have recovered “roughly 60% of their peak-to-trough value decline,” compared to roughly 40% by the commercial market as a whole.
Some of the nation’s largest metros also are seeing improvements.
For example, following “a strong post-crisis recovery,” New York is about 7% off its peak. The recovery in Los Angeles started to lose momentum in 4Q 2011 and has regained less than half of its peak-to-trough decline. While Atlanta is not regaining significant pricing traction and has recovered one-quarter of its peak-to-trough decline."
