Commercial Property Values in the USA Fall 20 percent Q1 2009

MOODY’S/REAL COMMERCIAL PROPERTY PRICE INDEX DECLINES 1.7% FOR MARCH

Index Stands 20.8% below March 2008 Levels 22.8% below peak of October 2007 Value Drops Nearly 20% in First Quarter ‘09

The Moody’s/REAL National All Property Type Aggregate Index from Real Estate Analytics, LLC, (REAL), measures 148.07 for March 2009, a decrease of 1.7% from the previous month.  The Index, which has captured price data through the end of March 2009, is now 20.8% lower than it was a year ago and 22.8% below the peak measured in October 2007.  The index also indicated a 20% drop in prices over the past two years and has returned to its level of March 2005, although still lagging behind the residential sector falls.

“During the first quarter, we expected to see weakness in the office and retail market.  However, not to the extent reflected by our National Office (-18.6%) and National Retail (-12.9%) indices.  In addition, we are surprised that our Top 10 MSA Retail index reflected a larger drop than our National Retail index (-14.0 vs. 12.9).” said Neal Elkin, President of REAL.

Mr. Elkin added that sales volume for the market overall, shows that both total dollar value and number of sales are down about 75-80% lower than the volume seen last year, which suggests these figures are not wholly representative and are actually disguising the true fall in values. The entire industry is waiting for the large amount of expected commercial property loan defaults – world wide. The situation in the UK is perhaps more dire and there is in excess of £76 billion worth of commercial real estate loans in breach of their banking covenants and needing refinancing this year.

In the first quarter, US national office prices have fallen 30% from the peak and national retail properties saw values fall 13%. Apartment and industrial prices remained flat and Western apartment prices saw a slight gain of 2.7%.  The offices sector experienced their single largest drop in the West with values falling over 16% in the first quarter, making commercial real estate investment a risky bet for the small investor currently.

Moody’s/REAL Commercial Property Indices are owned by Real Estate Analytics, LLC, and provides the only investable, transaction-based commercial real estate benchmarks available in the United States. The All Property Type Aggregate Index is measured monthly, while national and regional data by property type are measured quarterly. Changes in quarterly indices, if any, will be reported in May 2009.

Many analysts expect the decline to continue throughout this year and into 2010. The retail and office sectors are under particular pressure with the drop in consumer confidence creating vast amounts of empty commercial space. Las Vegas has a 28% vacancy rate currently, and with the car makers shedding dealerships across the US, the commercial property glut looks set to swell even further.

The full report is available for PDF download here.