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Moody's: CRE Price Growth Remains 'Effectively Stalled'

Tucker, Michael
The commercial real estate price recovery that slowed last fall remained stalled in the three months ending in August, gaining only 0.1 percent, reported the Moody's/RCA Commercial Property Price Index.

"Both components of the national all-property index, apartment and core commercial, saw little or no gain over the last three months," said Tad Phillip, director of commercial real estate research with Moody's Investors Service, New York, which publishes the report with Real Capital Analytics, New York. "Apartment is up 0.4 percent from three months ago; core commercial remains the same."

The Moody’s/RCA Commercial Property Price Index measure price changes in U.S. commercial real estate based on completed sales of the same commercial properties over time, known as the "repeat-sales" methodology.

Central business district office led the core commercial sectors over the three months ending in August with price growth of 1.2 percent. "The recovery in central business district office, a sector favored by institutional investors, has been strong since the trough, up 65.3 percent since January 2010," the report said. "It has outpaced the other core commercial sectors over the last one-, three- and 12 month periods." But prices for retail properties fell 1.6 percent between June and August.

Though apartment prices in major markets declined 23 percent between their December 2007 peak and the September 2009 trough, they have now fully recovered. "[Apartments'] strong recent performance reflects the sector's healthy fundamentals and abundant liquidity," the report said. "The next best performer, central business district office in major markets, is 12 percent below its peak."

As the presidential election approaches, Moody's examined commercial real estate price changes in both Republican- and Democratic Party-leaning states. It found that "blue," more Democratic states have outpaced more Republican "red" states since December 2000, "but the recovery in the red states since the early 2010 trough has been more robust." The long-term performance of swing states falls mid-way between that of the blue states and the red states at roughly the national average.

"New York is the clear leader among the large blue states and is approaching a new peak. Since 2000, Texas has set the pace among the large red states, as has Virginia among the swing states," the report said.