Commercial Property Prices
Dec. 2000 = 1.0
Commercial property prices continue to firm according to the Moody’s/REAL Commercial Property Price Index, up 3.6 percent in May. From its peak in October 2007 to its trough in October 2009, the index fell 43.7 percent, but it has risen 8.6 percent off the bottom. Real Capital Analytics confirms that the average cap rate for all commercial property sales in the second quarter declined by 10 basis points to 7.6 percent, and it declined for all property types except hotels. Core properties in primary, supply-constrained markets are commanding higher prices; investors have concluded that prices for the best properties have already hit bottom. Distressed assets still account for a relatively small portion of overall sales, though many in the industry expect that to change as banks and CMBS special servicers begin to release troubled properties to the market. As that occurs, distressed assets will comprise a larger portion of the sales, which may keep the index and average cap rates relatively flat for an extended period. The current cycle appears to be playing out much differently than the industry’s last recessionary cycle in the early 1990s. Building Knowledge, Grubb & Ellis’ blog on commercial real estate, compares the two cycles.