US commercial real estate prices resume slide in July

Source : Business Times – 24 Sep 2009

US commercial property prices renewed their steep decline in July as sector prices were down nearly 39 per cent from peak levels two years ago, said Moody’s Investors Service in a report. Moody’s/REAL Commercial Property Price Index (CPPI), released on Monday, showed its 10th consecutive decline in the index with a sharp 5.1 per cent drop in July.

Prices in office, retail and apartment properties had eased to 0.1 per cent in June, but reversed course in July to remain more in line with earlier slides of 7.6 per cent in May and 8.6 per cent in April.

After its latest decline, the CPPI index now stands 30.8 per cent below its year-ago levels and 37.5 per cent below the level seen two years ago. Overall, commercial property prices have now declined nearly 39 per cent since the peak of October 2007, Moody’s said.

The US$6 billion US commercial real estate market is a key focal point for the Federal Reserve and US lawmakers who have pegged it as a particular danger to the nascent economic recovery. Programmes aimed at reviving lending are just getting underway, but the efforts are complicated as falling revenue and prices are reducing value of the properties and causing defaults.

Improved access to credit via the Fed’s Term Asset- Backed Securities Loan Facility, or TALF, should help the commercial real estate sector at a time when billions of dollars in loans are facing refinancing needs.

Moody’s said its index that measures monthly sales transactions remained low and was down 66 per cent so far in 2009. ‘The market has averaged about 375 sales per month for the seven months in 2009. Over the same time period in 2008, sales were averaging nearly 1,100 a month,’ said Nick Levidy, managing director at Moody’s.

In addition, its Regional Property Type Index showed prices for apartments in the Eastern region of the United States performing significantly better than in other regions. Apartments in the East region have declined 6 per cent in the past year and 10.5 per cent in the past two years, which is a smaller decline than any other regional property type for just one year.

Nationally, apartment sector prices have declined 24.4 per cent in the past year. Southern region apartments posted the steepest drop over the past year, at 44.2 per cent, significantly more than the 6 per cent decline in the East and the 24.4 per cent decline for the country as a whole, said Moody’s.

Florida apartments have also seen dramatic declines in the past four quarters, declining 39.8 per cent. Florida apartment prices are now 49.8 per cent below their peak prices.

Other notably weak markets the indexes point to are the office and industrial markets in Southern California. In that area, office values have declined 25.8 per cent and industrial values 24.2 per cent since a year ago, the ratings agency said.