Commercial Real Estate Metrics Looking Good

In the Mortgage Banker’s Daily news this week was a summary of very positive commercial real estate metrics. The article covered a wide array of data types and sources portending good gains year-over-year, with 52 percent of the indicators being positive last year while 85 percent were this year, based on the Urban Land Institute’s Key Indicators.

Findings include:

  • Sales volume of commercial properties (excluding land and hotels) was up 21 percent in August 2012, at $16.7 billion, approaching the long-term average calculated since 2001
  • Apartment transactions were up 84 percent according to Real Capital Analytics (RCA), while office sales retracted slightly
  • Capitalization rates increased from 6.82 percent in July to 6.91 percent per RCA
  • The top 10 markets represented 42 percent of commercial sales in the past year:Manhattan
    Los Angeles
    San Francisco
    Washington, DC’s Virginia suburbs

Another report from the MBA this week indicated relatively flat property values in the past three months based on a RCA-Moody’s Investor services report. Apartments were the lone positive segment, posting a 0.4 percent price increase.

Apartment values have fully recovered since plunging 23 percent after the peak in December 2007 to the bottom in September 2009. The second best performer has been central business district offices, which remain 12 percent less than the peak price levels.

CMBS delinquencies remain on an improving trajectory with four consecutive months of declining late payments and increased loan payoffs.

According to Fitch Ratings, September 2012 delinquency rates were:

10.24 percent Hotels
9.95 percent Apartments
9.03 percent Industrial
8.83 percent Offices
7.48 percent Retail

Without question, the commercial real estate sector is seeing a modest recovery fueled by a return of liquidity to the sector and a dearth of returns elsewhere. The 10-year Treasury note closed the week at 1.79 percent compared to the 6.91 percent cap rate for commercial properties. That means that commercial properties are yielding 3.86 times more than 10-year Treasuries.

Yep—commercial is coming back.


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