After a break-neck plunge, commercial real estate prices in the United States are beginning to inch up, slowly. Moody’s Investors Service reported this week that values of commercial properties increased for the third month in a row in January, rising 1.0 percent from the company’s December reading.
Prices have now come back 6.3 percent from their October 2009 low, at which point prices were down 43.7 percent from their peak measured in October 2007.
While any uninterrupted increase is a welcome change of pace from the freefalling days of the past two years, Nick Levidy, Moody’s managing director, cautioned, “A few months of price gains does not necessarily indicate a sustainable trend, particularly in these difficult times.”
Higher transaction volumes are needed to enhance the price discovery process and provide a clearer picture, Levidy said. But after enjoying a brief uptick in December due to end-of-year sales, transaction volume came back down in January.
According to the latest Moody’s/REAL Commercial Property Price Indices (CPPI), there were 376 sales in January, 8 percent less than the same time last year. However, by dollar volume, sales totaled $4.9 billion, a 9 percent increase over the year before.
For the CPPI, Moody’s evaluates commercial real estate prices for four major property types: office, retail, apartment, and industrial. The ratings agency reported that prices in all four categories in the Eastern part of the country experiences “significant” double-digit declines in 2009. Prices on the four property types in this region have fallen 26 percent to 39 percent from their peaks two years ago.
In the South, all four property types saw annual price declines in excess of 25 percent last year, faring worse than the national average, Moody’s said.
New York registered the worst office market performance measured by Moody’s, with prices down 32.7 percent in 2009, while Florida’s apartment sector saw a value drop of 38 percent last year.
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