US Commercial Real Estate Prices Tick Up After Falling Later and More Sharply Than House Prices
CRE prices edged up slightly in November, but remain under pressure, according to Moody’s REAL CPPI Index.
The National — All Property Type Aggregate Index measured a positive gain for the first time in more than a year. Values increased 1.0% in November, following several months of mild declines. Transaction volume fell in November.
We expect commercial real estate prices to decline further in the months ahead. Prices for properties with short term lease structures, such as multifamily, could show signs of a sustainable recovery later this year, while other property types will likely need longer to turn the corner.
According to the Case Shiller Index, home prices peaked in August of 2006, more than one year before the peak in commercial real estate. Home prices then fell for more than two and a half years, bottoming out in April 2009, with nearly a one-third value loss. Since April, prices have rebounded slightly but have seen no significant growth in the last two months’ returns.
In contrast, commercial property prices fell further in a shorter amount of time. After two years of value declines, commercial real estate reached its lowest value yet in October 2009, nearly 44% below the peak level. Prices in the commercial sector will rebound off the bottom as markets recover but we expect that commercial property prices will ultimately flatten out for the longer term at levels 30% to 40% below the peak.
For details see Moody’s/REAL Commercial Property Price Indices, January 2010 (Premium)
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