March 2010

Property Pricing in January Rose for 3rd Straight Month

Mar 22, 2010 - CRE News

In another sign that the era of rapid commercial property value declines is ending, pricing in January increased for the third consecutive month, according to the Moody's/Real Commercial Property Price Indices, or CPPI.

However, the monthly rise is not a reason to expect a swift run-up in prices. If anything, it may show that pricing patterns will fluctuate in the months ahead.

January's 1% hike follows a 4.1% gain in December in the indices' all-property component. CPPI is a collaboration of Moody's Investors Service and Real Estate Analytics that tracks repeat sales of properties.

The December increase, which was the largest monthly gain ever recorded by the index, followed a 1% gain in November that was the index's first increase since December 2008.

"Passengers are advised to keep their seatbelts fastened in case of further turbulence" in pricing, Moody's said. It added that the broader economy remains under pressure, and how that plays out will impact pricing.

For example, lenders have yet to offer massive amounts of properties taken from financially troubled owners. Instead, many lenders have been extending the maturity dates of troubled loans. Not until sales start taking place in volume can "market-clearing" prices be established, Moody's said.

Going forward, it said that a move by the FDIC to sell commercial mortgages and properties taken from failed banks will create "new and lower benchmarks" in many markets.

Meanwhile, a reduced number of transactions in January set the stage for the month's overall pricing levels to be driven upward by sales of higher-quality assets, which have faced solid investor demand. January's 376 sales were down 8% from the same month a year before, but the $4.9 billion value of deals was up 9%.

Despite gains in recent months, January pricing for the all-property index was still down 38.7% from January 2008 and 40.2% lower than its peak in October 2007.

Industrial properties led all sectors in price drops over the past two years, as pricing for all of 2009 was down 33.9% from 2007. Multifamily was down 31.2%, office 30.6% and retail 25.9%.

CPPI's all-property index is recorded monthly, while its indices for individual sectors are recorded quarterly.

Copyright © 2010 Commercial Real Estate Direct, a service of FM Financial Publishing LLC. All rights reserved.

 

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Managing Director

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