Moody’s/RCA: Commercial Prices Slip While Multifamily Prices Rise

Commercial property prices decreased 0.2 percent in January while apartment prices rose 0.9 percent, reported Moody’s Investors Service and Real Capital Analytics, New York.

When examined together, the Moody’s/RCA all-property index increased by just 0.1 percent in January. Apartment sector price gains were mostly countered by the decrease in the larger core commercial sector, “resulting in flat overall performance,” the report said.

“Commercial property prices now stand about 23 percent above their pre-crisis peak level,” the report said, noting that apartment property prices are up more than 50 percent and core commercial prices are up nearly 13 percent from their cyclical low points.

But property prices may have reached a “plateau,” said Peter Rothemund, Senior Analyst with Green Street Advisors, Newport Beach, Calif. “Cap rates are slightly higher than they were three months ago, but growing rental income has offset that–values have been steady.”

Moody’s/RCA noted that smaller-market price growth outpaced major-market growth by two percentage points over the past 12 months. Non-major market prices increased 9.0 percent while major-market prices rose 7.0 percent.

In addition to smaller markets, less expensive properties outperformed high-end buildings in January, reported data firm CoStar, Washington, D.C. The data firm’s value-weighted index, which reflects larger asset sales common in core markets, fell 0.9 percent while its equal-weighted index gauge of lower-priced property sales advanced by 1.4 percent in January.

“Transaction volume started the year at a steady pace,” CoStar said, noting that composite pair volume exceeded $133 billion in the 12 months ending in January, up 3.1 percent from the previous 12-month period.

CoStar said commercial real estate market liquidity remain “healthy.” The average time spent on the market fell nearly 13 percent in the 12 months ending in January 2017 and the sale-price-to-asking-price ratio narrowed by 3.8 percentage points to 97.3 percent–the tightest ratio seen since 2006. The share of properties withdrawn from the market by discouraged sellers fell nearly 6 percentage points to 26.1 percent during the 12 months ending in January.