Commercial Real Estate prices oscillate – no firm indication

The Commercial Real Industry is suffering – the most obvious finding by financial experts and research firms. But the questions most difficult to answer even by experts are – how much and what the trend is indicating. The monthly CoStar Commercial Repeat-Sale Indices (CCRSI) try to answer these questions fairly, but not accurately as there are no effective indices to measure commercial property price movements and there is variation by property types and geographies.

However, the latest index from them reports that the commercial real estate pricing comes to the reckoning from two different worlds – institutional capital investments and broader market controlled by private investors. According to data available for the last 10 months, it is safe to assume that the commercial real estate pricing were facing an upward trend over the first two quarters of this year, but softening now in overall investing activity.

In the last 10 months period, the overall composite index oscillated from positive to negative and then back again.  For the period from May to June, the composite index went down by 7.78% and the investment grade property prices declining by 4.83%, thereby reversing the positive gains shown earlier.

Now there is a pause in some of the positive trends of commercial real estate prices, which are attributed to – uncertainty prevailing in the U.S. economy; continued weakness in the housing market conditions; and also concerns surrounding the European economy. Added to that the financial reform bill proposals by the federal government have made commercial mortgage lending institutions to stop and look forward cautiously, about the capital requirements before proceeding further.

But what is most apparent is – distressed properties in the commercial sector continue to attract opportunity funds for investments and the price index is affected significantly by this, although the flood of opportunities predicted earlier in the commercial property foreclosure did not materialize so far. Otherwise the volume of transactions in commercial property investment would have been much more.

So as per data available, the transaction volumes in respect of distressed properties are – hospitality sector being the leader with 35 percent; multi-family sector follows closely with 28 percent; office complexes and buildings at 22 percent; retail properties amount approximately near 20 percent; and industrial properties on distress sale at 17 percent.

Posted by Amitesh Kumar on Aug 11 2010. Filed under Market Updates. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry