Prices Dip Nationally for Two Months in a Row

NEW YORK CITY-Continuing along a track of bouncing along the bottom that has prevailed thus far in 2010, US commercial real estate prices took their second consecutive monthly decline in July, Moody’s and Real Estate Analytics said Monday. The index is now only 0.9% above the recession low recorded in October 2009, and 43.2% below its October 2007 peak.

July’s decline in the Moody’s/REAL All Property Type Aggregate Index was 3.1%, and means that commercial property prices have fallen a total of 4% in the first seven months of this year. June’s decline was also more than 3%, and follows two months of gains, which followed a monthly decline in February and March that occurred after a three-month streak that marked prices’ first gains in 13 months.

“Commercial real estate markets were caught in a downdraft as the economy appeared to further weaken in the early part of 2010, resulting in relatively large declines in the index in the early summer,” Nick Levidy, managing director at Moody’s says in a statement. “The recent performance, while perhaps somewhat discouraging, should not come as a complete surprise. We have noted for several months that markets are likely to remain choppy for some time as property values slowly form a bottom in conjunction with a gradual recovery of the broader economy.”

Levidy’s comments are in line with an observation by Neal Elkin, president of REAL, earlier this year. When the all-property index showed a decline in February March after three months of gains, Elkin told GlobeSt.com, “Given a lot of the conflicting pressures on pricing in the asset classes, our view has been that bouncing along the bottom would be the most likely scenario. These types of gyrations—up a little bit, down a little bit, up a little bit—are consistent with that."

Levidy and the co-authors of the September report note that “several factors in the early part of the year conspired to increase downside pressure.” They included the sovereign debt crisis in Europe and the possibility of a double-dip recession and deflation in the US.

In response, many economists lowered their growth expectations for the domestic economy, according to the Moody’s report. Commercial real estate markets were therefore caught in a “downdraft” that is reflected in the “relatively large” declines in the index over the past two months.

Annual indices also released Monday by Moody’s and REAL show prices on properties in the East increasing in three of the four property categories-office, retail and apartments-over the past year. Prices in the fourth category, industrial properties, are down 7.6%. Retail properties in the East showed the greatest year-over-year increase, rising 12.9%.

Retail prices in the South, by contrast, have declined 31.5% over the past 12 months. Prices have increased in Southern apartment markets 1.4% over the last year, after dropping 44.2% in the previous year. The Southern apartment index peaked three years ago and has declined 48.0% since then.

The Florida apartment market also realized its first positive return since its peak four years ago, increasing 10.8% over the last year and excelling the multifamily sector’s index for the South as a whole, although it continues to underperform the national index. Values in Florida apartments are now down 44.4% from the peak.

Southern California represents “a mixed bag,” according to Moody’s. Apartment and office showed increases over the past 12 months, while industrial and retail declined. Similarly to Florida apartments, Southern California multifamily prices did better than those of the entire Western region. The Moody’s/REAL indices are based on data from Real Capital Analytics.