Economic factors, such as unemployment and consumers’ controlled spending, continue to weigh heavy on the commercial real estate sector and drag down fundamentals, but the rate of deterioration appears to be moderating, the Mortgage Bankers Association (MBA) said Wednesday.
According to the trade group’s quarterly study, average vacancy rates increased for each of the major property groups during the last three months of 2009. Vacancies hit 19.2 percent for retail properties, 19.7 percent for office spaces, 13.2 percent for industrial properties, and 8.6 percent in the multifamily sector.
Similarly, MBA said average asking rents dropped for every major property type, with quarterly year-over-year declines ranging from 6 percent for apartments to 9 percent for industrial properties.
The volume of property sales, though, picked up in the fourth quarter of 2009, capping steady increases over the course of the year. But MBA said even with the climb, total sales for 2009 – at just $50 billion – remained 63 percent below the 2008 level.
The association noted that property prices also appear to have stabilized in the second half of 2009, citing the Moody’s/REAL commercial property price index (CPPI), which rose 3.6 percent in the fourth quarter. Over the full
year, the index marked a decline in value of 29 percent, but MBA said because of the small number of transactions taking place, and the fact that many of the recorded transactions are distressed, the numbers should be used with caution.
MBA’s analysis showed that commercial mortgage originations followed a course similar to property sales, rising over the course of 2009 from a very low first quarter level. Commercial/multifamily mortgage originations in Q4 2009 were 50 percent higher than during the first quarter and 12 percent higher than Q4 2008 levels – MBA explained that this says more about how low volumes were at the beginning of the year than about where they ended.
“Given the remarkably low levels of sales, originations, and other activity over the past year, future reports are likely to show significant percentage increases across a variety of measures, even if those measures remain at relatively low absolute levels,” MBA said in its report.
The trade group’s researchers also noted in their report that commercial mortgage delinquency rates continued to increase for most investor groups in the fourth quarter, the one exception being life insurance companies.
Between the third and fourth quarters, the 30-plus day delinquency rate on loans held in commercial mortgage-backed securities (CMBS) rose 1.63 percentage points to 5.69 percent.
The 60-plus day delinquency rate on multifamily loans held or insured by Fannie Mae nudged up just 0.01 percentage points to 0.63 percent, which the 90-plus day delinquencies on multifamily loans held or insured by Freddie Mac increased 0.04 percentage points to 0.15 percent.
“Delinquency rates are likely to remain under pressure until job and other economic growth returns to levels that will have a material impact on demand for commercial real estate space,” MBA said in its report.
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