Prices Rise Nationally for Three Months Running

NEW YORK CITY-Three months down, three months up. Following declines in commercial property prices between this past June and August, prices rose between September and November of 2010, Moody’s said this week. In a commentary for Real Estate Analytics, which compiles the Commercial Property Prices Indices for Moody’s using Real Capital Analytics data, David Geltner notes this is the first times prices have risen for three consecutive months in nearly a year. It’s also only the second time this has happened since 2007.

However, notwithstanding the stabilization in both fundamentals and pricing noted Wednesday by the National Council of Real Estate Investment Fiduciaries, it’s also too early to spot a long-term upward trend. “We expect the choppiness of the CPPI to continue in the months ahead,” Moody’s managing director Nick Levidy writes in the report. “A clear positive trend is unlikely to develop until markets become convinced that the recovery of the broader global economy has real staying power.”

The Moody’s/REAL National All Property Price Index rose 0.6% in the month ending Nov. 30, and the current index is 6.4% higher than the low point reached this past August. Prices at the end of November were up 2.8% over the year prior, but still off the Oct. ’07 peak by 41.6%. Moody’s notes that the three consecutive months of price gains weren’t enough to offset the three previous months of declines.

“In broad terms, the choppiness seen in the index returns over the past 12 months reflects the overall uncertainty in the breadth and staying power of the macroeconomic recovery in the United States and Europe,” Levidy writes. “A fragile recovery, uncertainty about the forward-looking interest rate environment and pressure from developments in the European sovereign bond market all conspired to depress index returns.”

Added to which is the downward pressure exerted on pricing by distressed property sales. In a market that’s still low on volume, “only a few distressed sales can swing the total percentage of distressed sales above or below the annual average,” writes Levidy. He adds, “When these elements of the broader economy stabilize, and the market perceives the course change as sticking, transaction volumes will pick up, the backlog of troubled properties will start to clear and the index will start to show a definitive positive trend.”

In a commentary on this month’s CPPI, Geltner, a leader of the MIT team that developed the indices, notes a couple of encouraging trends in pricing. One is that the gap between trophy and distressed pricing has started to close. Another, Geltner writes, is evidence of recovery in the broader “middle” of the market, “as institutional demand from sources such as REITs (both listed and non-listed) begins to spill over into non-trophy properties in top-tier cities and premium properties in secondary markets.”

Still more encouraging news comes from RCA itself. The data firm said in a statement Wednesday that the fourth quarter of ’10 represented the strongest three-month period for US commercial property sales since ’07, with $55.3 billion worth of transactions.

Similarly, Chicago-based NCREIF said that annual returns for US institutional real estate reached 13.11% this past year, also the highest level since ’07. In terms of sheer volume, RCA said China represented the world’s largest property market for the second year in a row, with $197.1 billion worth of transactions over a 12-month period.