NEWPORT BEACH, CA—Prices on REIT-owned properties kept on increasing in May, Green Street Advisors said Thursday, with the Green Street Commercial Property Price Index appreciating by 3% for the month. Whether that upward trend continues is an open question, however, the Newport Beach. CA-based research firm said earlier this week.

“Property prices continue to hit new highs as bidders push cap rates lower and lower,” says Peter Rothemund, an analyst at Green Street. “With cap rates at current levels and interest rates at year-to-date highs, commercial real estate no longer looks cheaply priced when compared to the corporate bond market. Though valuations may now only be considered fair, the wide stream of capital searching for a home in commercial property means that further increases in pricing should not come as a surprise.”

Green Street says property appreciation has been strong lately. Prices of institutional-quality commercial real estate have increased by more than 10% over the past year, and are now 18% above the August 2007 peak.

That being said, Green Street's latest forecast for property appreciation and the REIT asset value premium shows the former continuing to go north and the latter heading south over the next six months. “The major REIT property sectors currently trade about 5% below the private-market values of their real estate assets,” according to Green Street. The firm says this represents “a modestly negative signal” for the direction of property prices.

“Premiums/discounts to unlevered asset value in the public market have proven to be highly predictive of future changes in property values,” Green Street says. “REIT investors are currently sending a signal that property prices are on the expensive side of fair.”