U.S. Commercial Real Estate Prices Down 7.6% in May

US commercial real estate prices as measured by Moody’s/REAL Commercial Property Price Indices ((CPP)I) decreased 7.6% in May, leaving the index at 28.5% below its level a year ago and 34.8% below the peak in prices measured in October 2007.

Large commercial real estate price declines in the last two months suggest that a bottom may be starting to form, although higher transaction volumes would be necessary in order to draw any definite conclusions. - Moody’s Nick Levidy

In May overall sales volume by both dollar amount and count reached new historical lows for the CPPI, which dates back to 2000.

Comments

[Mad Hedge F...:]

Ouch. If you have had any doubt that commercial real estate is not the place to be putting your capital right now, take a look at the latest Q2 industry data. The vacancy rate jumped from 19.9% to 21.4%. Net negative absorption nearly doubled from 600,000 sq. ft. to 1 million sq. ft., while 723,896 in new space was completed. Closed sales plummeted from $87.2 million, to $45.9 million. Paying tenants looking to add space are staying away from the market in droves, easily renegotiating reductions in lease rates instead of committing to risky new purchases. The inventory glut is dragging prices down, scaring off marginal lenders. Several high profile bankruptcies of trophy properties have only exacerbated the pain. The capital drought looks likes it will get worse before it gets better. I would love to recommend shorts here, but the listed REIT’s have already been so crushed, I’d rather stay away. Look at the chart for Prologis (PLD). Pilots will recognize all of this as an irrecoverable flat spin, a twin pilot’s worst nightmare. Non-pilots should watch Top Gun.

Jul 21 01:16 PM

[Respirate:]

Useful blurb, thanks. It's worth looking for the bottom in commercial real estate for purposes of investment portfolio diversification. Real Estate ETFs and trusts can counter balance equity holdings in a portfolio and throw off cash for above average yields.

Jul 21 01:21 PM

[Research Recap:]

Glad it was helpful. Based on typical lag of commercial real estate compared with residential, bottom may not be reached for another year or more.


On Jul 21 01:21 PM Respirate wrote:

> Useful blurb, thanks. It's worth looking for the bottom in commercial
> real estate for purposes of investment portfolio diversification.
> Real Estate ETFs and trusts can counter balance equity holdings in
> a portfolio and throw off cash for above average yields.

Jul 23 12:46 PM