Commercial Real Estate Prices Increase for Third Straight Month
Original Post Date: 9/22/11

By: Krista Franks

Commercial real estate prices increased for the third consecutive month, according to Moody’s/REAL Commercial Property Price Indices. Prices are now similar to levels recorded two years ago.

For the month of July, the National-All Property Type Aggregate Index posted a 5 percent increase. The index is now 12.6 percent above its post-peak low. However, it is 42.5 percent below its peak.

While both distressed and major assets posted slight increases for the month, Moody’s attributed the 5 percent increase to the middle market.

“We view this month’s gain more as a continuation of the bottoming process than as a harbinger of recovery,” says Tad Philipp, Moody’s director of commercial real estate research. “We expect the contraction of CMBS lending and stalled employment growth to prolong the bottoming process for the market as a whole.”

Sales of distressed assets made up 28 percent of the market in July. The month marked the 18th consecutive month in which distressed sales made up more than 20 percent of transactions.

Major assets/major markets made up 12 percent of July’s activity, and the remaining 60 percent went to the middle market.

Moody’s recorded 192 repeat-sales observations.

This transaction rate is higher than the average monthly rate for the year, which is 181. Both the July count and the year-to-date monthly average are higher than the monthly transaction averages for 2010 and 2009, which are 144 and 96 respectively.

Most notable on a metropolitan level were the increases posted over the last four quarters for New York office properties, San Francisco office properties, and Florida apartments.

New York office property prices rose 25 percent; San Francisco office property prices increased 22.8 percent; and Florida apartment prices rose 22.7 percent.