The prices of investment-grade commercial real estate rose more than 4
percent in the third quarter, possibly signaling an end to the sector's
year-long downward spiral, according to an leading property index
released Tuesday.
The 4.4 percent third-quarter increase in the MIT Center for Real
Estate's transaction-based index (TBI) index is the first positive
price change in the index in more than a year and the largest increase
since the market downturn began in mid-2007.
"One quarter does not a trend make and we are
still well below normal trading volume," David Geltner, director of
research at MIT/CRE, said in a statement. "Nevertheless, this is the
strongest sign of a bottom that we've had in two years."
The
U.S. commercial real estate market has been in a downward spiral for
more than two years. Borrowers are facing shortfalls in financings when
loans come due. Some borrowers are struggling to meet even monthly
payments.
The delinquency rate of U.S. commercial real estate loans securitized
into Commercial Mortgage-Backed Securities (CMBS) hit 4.8 percent in
October, up from 4.36 the prior month and dwarfing the 0.77 rate of a
year earlier, according to Trepp, which tracks CMBS loans.
The TBI tracks the prices that institutional
investors, such as pension funds pay or receive when buying or selling
commercial properties such as shopping centers, apartment complexes and
office towers.
The
price index at the third quarter stood at 36.5 percent below its 2007
peak, up from its 39 percent deficit seen last quarter, which now could
be the trough and suggests the U.S. commercial property market may have
finally found a price bottom.
In
addition, the number of transactions rose for the second straight month
in the third quarter to 90 from 42 in the second quarter.
"The
big news this quarter is not just that the price index increased, but
that transaction volume substantially increased for the second quarter
in a row, reflecting the first increase in market sentiment in two
years," Geltner said.
MIT/CRE
also compiles indexes that gauge movements on the demand side and on
the supply side of the institutional property market.
The
demand-side index -- which tracks the changes in prices that potential
buyers are willing to pay -- rose to 42 percent below the 2007 peak, up
from 48 percent last quarter. It ended eight consecutive declines.
The 12 percent jump was the first increase in the demand index after eight consecutive quarters of decline.
"The
demand index can be considered a gauge of market sentiment, at least
among the all-important buy-side of the market," Geltner said.
The
supply-side index -- which gauges the prices property owners are
willing to accept -- continued to fall in the third quarter. It was
down by 2.5 percent, to 30 percent below its peak.
"The
combination of the upsurge in demand and the continued drop in sellers'
prices led to the strong increase in transaction volume and the
beginnings of a reliquification of the market," MIT/CRE Research
Technician Holly Horrigan said in a statement.
Original source: http://www.cnbc.com/id/33598373