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Commercial asset prices cool off in January

Sales prices cooled for most commercial property types in January, but not in the red-hot apartment sector.

The price of core commercial properties — office, industrial and retail — fell 0.2 percent month over month, but apartment assets were up 0.9 percent for the month and gained 11.5 percent for the year, according to the Moody’s Investors Service/Real Capital Analytics (RCA) indices.  

CREpriceThe aggregate sales price for all properties rose 0.1 percent from the December level and was up 8.1 percent year over year, Moody’s reported. Moody/RCA tracks the changes in prices for assets valued above $2.5 million.

RCA Senior Vice President Jim Costello said commercial property prices should remain fairly stable over the next year.

“So long as the 10-year Treasury yield does not go up much more, the sector will not suffer much,” Costello told Scotsman Guide News. “That’s the multi-trillion dollar question: How much more will rates go up at this point or will they at all?”

Notably in January, office-asset prices were either flat or down for the month. The price of office located in central business districts (CBD office) fell by 1.9 percent from December. Retail assets also declined by 0.1 percent over the month.

Costello said recent readings on CBD office have been volatile over the past few months. CBD office prices rose 6.7 percent year over year in January.  

“I would not make too much out of the 1.9 percent [monthly] drop in CBD office prices,” Costello said. “These figures had gone up 3.1 percent in December, and were down 1 percent the previous month. So with the noise in these periods, I’d be loath to say that there was any appreciable change in the pricing trends there.”

Costello said the decline in retail property prices has been a solid trend, however. He also noted that prices have also been dropping rapidly in the hotel sector, which isn’t captured by the Moody’s/RCA all-property index. Hotel assets as of January declined 18 percent year over year in the six major U.S. markets.

“These areas have been dealing with an influx of new supply that had been making investors nervous,” Costello said. He said hotel prices aren’t falling at as steep a pace as they were in recent months, however.  

Commercial property prices are running well head of the past peak in several asset classes. Only retail and suburban office properties have not reached a new peak.

The Moody’s/RCA all-price index was 22.8 percent above its previous high. Meanwhile in the six major markets, apartment assets were 76.3 percent above the past peak, and CBD office properties were 47.6 percent ahead of their last peak. 

Industrial properties had the highest annual gain in January at 11.7 percent, followed by the combined office sector at 7.8 percent and retail at 1.1 percent.

Prices are now rising faster outside of America’s largest markets.

Asset prices in the aggregate fell by 0.4 percent for the month in the six major markets, which include New York, Los Angeles, Boston, Chicago, San Francisco and Washington, D.C.  Prices in these major markets saw an annual gain of 7 percent in January, whereas price growth in the non-major markets rose by 9 percent. 


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