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US commercial property prices rising but concern remains over rising defaults and foreclosures

The Commercial Property Price Index from Moody’s Investors Service/Real Estate Analytics said the increase in December was the largest month-over-month increase in the nine year history of the report and followed a small 1% gain in November. The volume of transactions also rose in December, typical for the end of the year, Moody’s added.
In December, 716 transactions totaling $9 billion were recorded in the month. But commercial real estate prices are still down 29.2% from a year ago and 39.8% from two years ago. They are 40.8% below their peak values, the index also shows.
Analysts at Moody’s said it is uncertain whether the recent price increases represent commercial real estate passing the bottom of the market or are just the ‘volatility of a market in transition’.
‘Although we are unable to conclude that the bottom to the commercial real estate market is here, we do believe that the period of large price declines is over,’ said Moody’s managing director Nick Levidy. ‘We will need to see data from the first few months of 2010 to develop a better picture of where things stand,’ he added.
Moody’s also reported that three of the four major property types recording price gains in the last quarter of 2009. Offices had the largest gain at 7.9%, while apartments improved 7% during the quarter and industrial increased 5.6%. Retail was the only major sector to decline, at 1.5%. While the year end results were an improvement, the annual decline in sector prices ranged from 19.0% to 23.2%.
In the top ten metropolitan statistical areas apartment prices fell 2.1% in the last three months of 2009 and industrial prices were down 2.8%, Moody’s said. Retail prices increased 3.1% during the quarter, while offices, which declined almost 20% in the third quarter and 10% in the second quarter, were up 26.8%.
The top 10 MSAs account for about 50% to 80% of the transactions in the national property type indices, Moody’s said. However, in the West, prices have fared better than the national average in three of the four price indices, the office sector being the lone exception. Western office prices fell 25.5% in 2009, compared to the national office annual decline of 19.8%, Moody’s said.
But while the large price declines may be over, the mounting foreclosures left in the wake of those losses still have to be processed through the system. In Denver, three local commercial real estate firms have joined together in a partnership to establish a distressed disposition company, American Property Solutions. It will work as property receivers and trustees, property and construction management, accounting and brokerage and leasing services.