Moody’s: CMBS Metrics Mostly Steady
The outlook for properties that support most commercial mortgage-backed securities mostly held steady in third-quarter 2015, reported Moody’s Investors Service, New York.
Moody’s CMBS Red-Yellow-Green Update’s composite score slipped two points to 72 out of a possible 100 in the quarter, “consistent with a balanced rate of both construction and absorption.”
The Red-Yellow-Green report examines supply and demand trends to determine an outlook by property sector and by market. “Red” or tenants’ markets score between 0 and 33 and show stress, with supply rising faster than demand. “Green” markets–landlords’ markets–score between 67 and 100 and show low or falling vacancy rates. Moody’s reported that outlooks for all sectors remained in the green range except for suburban office, which scored a yellow-zone 61.
Brian Olasov, executive director of financial services consulting with Carlton Fields, New York, said even though the third quarter wasn’t a particularly robust quarter generally, market sentiment across all asset classes has turned decidedly downbeat since then.
“In the face of the first Fed move in rates in December, market uncertainty still rallied 10-year Treasurys over thirty basis points since the third quarter,” Olasov said. “At the same time, lender sentiment has turned very cautious.”
Olasov said this caution may further tighten new construction that supports additional income growth for existing properties.
California is home to the five highest-scoring markets across property types: Oakland, Los Angeles, Orange County, San Francisco and San Diego. “As the scores indicate, the fundamentals of these markets are strong,” Moody’s said. “San Francisco in particular has seen strong demand in part driven by the technology sector.”
But Olasov noted that those major California cities derive strength from tech sector income growth, “a formula for success that most metros unfortunately cannot mimic,” he said.
Multifamily increased two points to green 79 as the sector’s vacancy rate and upcoming supply remained modest, Moody’s said. Central business district office rose three points to green 79 while suburban office increased one point to yellow 61.
The retail sector held steady at green 71, marking the sector’s tenth consecutive quarter in green territory, Moody’s reported. The retail vacancy rate continued to edge downward across all markets.
The hotel sector fell four points to green 74, its third consecutive quarterly decline after peaking at green 80 in late 2014. “This decline has been due to an increase in supply and slowing revenue per available room growth, which are expected to continue over the next year,” Moody’s said. Year-over-year RevPAR growth fell to 5.6 percent in third-quarter 2015 from 10.7 percent a year before.
