CMBS Supply-Demand Fundamentals Stable
Commercial property market supply and demand fundamentals remained relatively stable in the second quarter, said Moody’s Investors Service, New York.
The overall composite score increased one point to 72, remaining in the 100-point scale’s green zone. “The composite scores were green for all property types covered except for hotel and suburban office,” Moody’s quarterly Red-Yellow-Green update said.
The multifamily score held steady at green 83. The vacancy rate increased to 4.7 percent from 4.6 percent a year ago. Apartment vacancy rates increased year-over-year in 38 markets, decreased in 16 and held steady in 12 markets, Moody’s noted. Currently, 21 markets have construction that exceeds 2.5 percent of existing inventory, up from 18 markets in the prior quarter.
The retail sector increased one point to green 77, largely because forecasted construction as a percentage of existing inventory currently stands at just 0.5 percent and has not exceeded 1.0 percent since late 2008, Moody’s said.
Office sector fundamentals improved in both central business districts and suburban locations, the report noted. The central business district office score increased to green 69 from green 67 while suburban office properties saw a two point improvement to 58.
“Suburban office fundamentals were relatively stable this quarter,” Moody’s said. Suburban offices have remained in the yellow zone since 2014.
The industrial sector’s score improved one point to green 76. The overall vacancy rate decreased to 7.2 percent from 7.5 percent in the prior year.
The hotel index improved to yellow 62 from yellow 59 in the prior quarter, largely driven by improving revenue per available room growth, Moody’s said. RevPAR rose to 3.8 percent from 3.2 percent in the prior quarter and 1.3 percent in second-quarter 2017. The sector’s supply-demand relationship deteriorated during the quarter, falling to -2.1 percent from -0.8 percent in the prior quarter.
Looking at delinquencies, Citi, New York, predicted the conduit delinquency rate will continue its downward trend and fall below 3 percent next year. “The rate will likely decline because distressed loan resolutions should continue to outpace new defaults and net issuance will likely be positive, increasing the outstanding balance,” the firm’s CMBS Collateral Monthly report said. It projected 81 percent of the $8.2 billion performing loan balance that will mature next year will refinance.
“The majority of resolutions will continue to be pre-crisis loans,” as legacy REOs and loans in foreclosure are still at $8.6 billion and $2.9 billion, the Citi collateral report said. Year-to-date liquidation volume has totaled $5.7 billion, lower than in previous years, but still relatively high compared to total delinquent outstanding.
