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CRE prices rise to dizzying new heights

After achieving record levels last year, U.S. commercial real estate prices showed no signs of slowing down to end the year.

U.S. commercial-property assets posted an annual gain of 9.2 percent through this past December and were nearly 24 percent higher than previous peak in late 2007, according to the Moody’s/Real Capital Analytics all-property index. This is a measure of the aggregate price movements of core commercial and multifamily assets valued at over $2.5 million, and is based on repeat property sales.

CREpriceOver the past 12 months, apartment real estate prices rose 11.4 percent and prices for core commercial assets (office, retail and industrial) rose by 8.2 percent across all markets. Notably, industrial assets across all markets rose 12.7 annually, and office properties located in central business districts (CBDs) saw an annual gain of 12.6 percent.

Asset-price gains have been widespread across the country. Prices are rising slightly faster in non-major markets (up 9.2 percent annually) compared to the major markets of Boston, Chicago, Los Angeles, New York, San Francisco and Washington, D.C., where prices have risen in the aggregate by 9 percent, Moody’s said.

In some asset categories, the sales prices have already risen far beyond the past peak level from a decade ago. For example, prices for CBD office properties are now 49 percent higher than they were during the last peak in early 2008, and CBD office-property prices in the major U.S. markets are 57 percent higher than the last peak. Sales prices for multifamily properties in major markets are nearly 74 percent higher than the past peak, and are 52 percent higher across all markets.

Jamie Woodwell, vice president of Commercial Real Estate Research for the Mortgage Bankers Association, said asset prices have been pushed up over the past five to seven years as a result of rising income from the property, and the lower required returns from investors (so-called capitalization rates). 

"Taken together, they have pushed property prices up to record levels," Woodwell told Scotsman Guide News. He said the outlook for sales price is now a bit uncertain, however.  

"Continued economic growth is expected to support property income growth — although maybe not at the same pace for all property types — leaving the question of how interest rates and cap rates move," Woodwell said. "Where prices head from here will depend on the foot race between interest and cap rates and property income.”

Not all property types are seeing prices rise as fast.

Retail prices have were flat over the three months through this past December, and hotel prices had an annual gain of just 2 percent for all of 2016, Moody’s said.

Only suburban office properties and retail have yet to surpass their prior peak prices, Moody’s said. 

This story was updated from its original version to include analysis from the Mortgage Bankers Association. 


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