Though property and mortgage performance remain weak, commercial real estate fundamentals are beginning[IMAGE]
to show signs of stabilization, according to the first quarter 2010 ""Commercial Real Estate/Multifamily Finance Quarterly Data Book"":http://www.mortgagebankers.org/files/Research/DataBooks/1Q10QuarterlyDataBook.pdf recently released by the ""Mortgage Bankers Association"":http://www.mbaa.org/default.htm (MBA).
MBA said the economy showed signs of traction in the first quarter - with gross domestic product (GDP) and job growth both firmly positive. GDP growth came in at 2.7 percent during the first three months of this year, and the number of jobs grew in stride, increasing by 14,000 in January, 39,000 in February, 208,000 in March, 290,000 in April, and 431,000 in May.
According to MBA, this economic growth translated into some stability for commercial real estate fundamentals. However, the association said this stabilization has not yet flowed through to mortgage performance.
In the first quarter of this year, delinquency rates continued to climb for all investor groups, vacancy rates remained at record levels, and asking rents were well below their peaks. In addition, MBA said borrowing remained tight, despite what appeared to be significant competition to lend.
MBA said the combined pressures of property performance and valuations continued to have a direct impact on the performance of mortgages backed by commercial and multifamily properties. Between the fourth quarter of 2009 and the first quarter of 2010, the 30-plus day delinquency rate on loans held in commercial mortgage-backed securities rose 1.54 percentage points to 7.24 percent, and the 90-plus day delinquency rate on loans held by FDIC-insured banks and thrifts rose 0.32 percentage points to 4.24 percent.
In addition, MBA said the 60-plus day delinquency rate on loans held in life company portfolios increased 0.12 percentage points to 0.31 percent, and the 60-plus day delinquency rate on multifamily loans held or insured by Fannie Mae rose 0.16 percentage points to 0.79 percent. Furthermore, the 60-plus day delinquency rate on multifamily loans held or insured by Freddie Mac increased 0.05 percentage points to .24 percent.
As for vacancies, first quarter rates ranged from 8.4 percent for apartment properties and 13.3 percent for industrial to 19.4 percent for retail space and 19.6 percent for offices Ã¢â‚¬" all records. However, vacancies appear to have hit a plateau, as rates increased at the slowest pace since the fourth quarter of 2007, MBA said.
MBA also reported a continued decline in average asking rents in the first quarter of this year. The average asking rent for apartments fell to $15.06 per square foot, and the average asking rent for industrial space dropped to $4.55 per square foot. Additionally, the average asking rent for retail properties declined to $17.60 per square foot, and the average asking rent for office space edged down to $23.95 per square foot. But similar to the leveling out seen in vacancy rates, asking rent declines for all major property types were the lowest since mid-2008, MBA said.
According to MBA, the number of commercial and multifamily properties changing hands remained low in the first quarter. While the total dollar volume of major properties sold during period - $14 billion Ã¢â‚¬" was up 45 percent from the first quarter of 2009, the absolute level remained extremely low.
Following the lead of property sales transactions, commercial origination levels also remained low in the first quarter, MBA said. Borrowing was 12 percent higher in the first quarter of 2010 that it was during the same quarter in 2009, but the overall level was the second lowest since the MBA survey was started in 2002. MBA said market conditions make it likely that borrowing will remain subdued in the near-term, although the low base levels may produce reports of large percentage increases.
While economic growth appears to have moderated declines in commercial real estate fundamentals, further and broader stabilization is necessary for a continued recovery in this market. As economic growth continues, the impact on commercial real estate markets should broaden and reach rents, vacancies, and delinquencies, MBA said.