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U.S. Commercial Real Estate Values Decline as Rents Fall | The Commercial Finance Blog

U.S. Commercial Real Estate Values Decline as Rents Fall

by LJ Miehe on August 19, 2009

Editor’s Note: Well the commercial real estate crisis is growing and here is more evidence, that it is accelerating.  We are just past the half way point and values have already decline 27% so far this year.  Like many others have said, Moody’s said it is too early to forecast a bottom in the commercial real estate market, I agree.  We need to see unemployment decline and foreclosures to decline so the residential properties are not dragging down commercial real estate.

News (Bloomberg):

Commercial real estate values in the U.S. fell 27 percent in the year through June and rents for offices, shops and warehouse space may continue to drop through 2010 as the recession saps jobs and consumer spending.

The Moody’s/REAL Commercial Property Price Indices fell 1 percent in June and are down 36 percent from their October 2007 peak, Moody’s Investors Service said in a report today. A rebound isn’t likely until the second half of next year, the National Association of Realtors forecast in a separate report.

Unemployment of 9.4 percent, falling industrial production and a drop in consumer spending curbed property demand, NAR said. Falling rental income and scarce credit are hurting both landlords and investors in securities backed by commercial property loans. Defaults and late payments on commercial mortgage-backed securities may surpass 7 percent by year-end, according to research firm Reis Inc.

“It’s too soon to call the bottom,” said Connie Petruzziello, a Moody’s analyst and co-author of the commercial property price report.

The Moody’s survey found a 4 percent increase in office prices in the second quarter compared with the previous three months, the only gain among the four property types measured. Industrial properties, mainly warehouses and distribution centers, fell 20 percent in the quarter, while apartments fell 16 percent and retail properties 8 percent.

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