Report: Commercial Real Estate Prices Increase in February

Commercial real estate (CRE) prices ticked up slightly in February, according to the Commercial Property Price Indices (CPPI) released by ""Moody's Analytics"":http://www.moodys.com/ and ""RCA"":https://www.rcanalytics.com/Default.aspx?SessionState=-1.

[IMAGE]

The CPPI national all-property composite index increased 0.5 percent in February from the January price level, Moody's revealed in a release. The index's two components--apartment and core commercial--increased by 1.3 percent and 0.2 percent, respectively, for the month.

The index measures price changes in U.S. CRE based on completed sales of the same commercial properties over time, known as the repeat-sales methodology.

Among other findings: Retail property prices increased by 2.7 percent and 8.1 percent over the past one- and three-month periods, respectively, showing the greatest gain among the core commercial sectors. The share of distressed retail property sales transactions transitioned over the past several months from approximately 30 percent down the high teens, helping drive retail price gains.

[COLUMN_BREAK]

Prices in non-major markets have outpaced those in major markets over the last one- and three-month periods, and are about 1 percentage point behind major market price gains over the last 12 months (with a 5.3 percent gain as opposed to a 6.5 percent gain in major markets).

The recent report also examines the relationship between metro area price performance and loan losses since 2007. According to the findings, the biggest metros have fared best in both categories.

""There was a high correlation between peak-to-trough price decline and CMBS [commercial mortgage-backed securities] loan losses among the 20 metro areas tracked by RCA,"" said Tad Philipp, director of CRE at Moody's. ""Post-crisis price declines and CMBS loss severities in the six ‘major market' metros were generally smaller than those of the other, non-major metros.""

According to Moody's, the six major markets had an average peak-to-trough price decline of 37.0 percent and an average CMBS loan loss severity of 24.9 percent. Meanwhile, the 14 non-major markets fared much worse, experiencing a price decline of 47.3 percent and an average loan loss severity of 37.6 percent.

""The two metro areas with the biggest peak-to-trough commercial price declines were Las Vegas and Phoenix, both declining by more than 60 percent,"" Philipp said. ""They were among the most hard hit by the housing crisis, and exhibited a residential-to-commercial spill-over effect.""