Commercial Property Price Appreciation Slows

Property appreciation has slowed after prices posted near-double-digit gains in each of the past few years, reported Green Street Advisors, Newport Beach, Calif.

“So far, 2016 is shaping up to be the year when cap rates stopped declining,” said Green Street Advisors Senior Analyst Peter Rothemund.

Green Street noted that even though cap rates have largely leveled off, net operating incomes are still rising.

The Green Street Commercial Property Price Index increased 1 percent in May, Rothemund said. But he noted that price movements varied across property sectors. “Self-storage facilities and manufactured home communities continue to see large price increases while values of lodging properties are lower than they were at the beginning of the year,” he said.

Moody’s and Real Capital Analytics, New York, largely agreed with Green Street’s findings. Examining property price data through April, Moody’s/RCA said prices increased by just 0.2 percent that month. A 1.6 percent increase in apartment property prices more than offset a small decrease in core commercial property prices.

Core commercial prices fell 0.4 percent in April, Moody’s said, their fifth consecutive monthly decline.

Over the past 12 months apartment prices outpaced commercial prices by nearly 8 percentage points, Moody’s reported. While apartment prices grew more than 11 percent, commercial property prices increased only about 3 percent over the same period.

Prices in major markets have declined by about 3 percent over the past three months, Moody’s reported, largely due to weakness in the central business district office sector. CBD offices continue to cool off, declining nearly 8 percent over the past six months after leading all core commercial sectors in price appreciation over the past 10 years.

Non-major market price growth outpaced major-market growth over the past 12 months, Moody’s said. But major-market price growth continues to outpace that of non-major markets over periods of three years and longer.