Economy Watch: CRE Prices See First Dip in 6 Years, Says Moody’s

Moody's/RCA's latest Commercial Property Price Indices revealed commercial property prices declined for the first time since early 2010.
Tad Philipp

Tad Philipp, Director of CRE Research, Moody’s

Moody’s/RCA’s latest report on U.S. commercial real estate prices revealed that its Commercial Property Price Indices‘ (CPPI) national all-property composite index declined 0.3 percent in January 2016. That’s the first decline since the CPPI troughed in early 2010, and follows a flat performance in December 2015. It might, according to Moody’s director of commercial real estate research. Tad Philipp, signify “a shift in sentiment among commercial property investors.”

The CPPI measures price changes in U.S. commercial real estate based on repeat sales or completed sales of the same properties. The decline in the overall index was led by a 0.8 percent decrease in core commercial prices over the past three months. In January, office and industrial property prices each fell by more than 1 percent. Retail was the only core commercial property sector to show a gain in January, with prices rising 1.1 percent.

By contrast, apartment prices continue to rise, up 0.7 percent in January and 2.7 percent over the past three months. Other findings of the report included that price growth has begun to decelerate in major markets. Prices went down 0.6 percent in major markets in January and have risen only 0.1 percent in the past three months.

The Moody’s report also looked at the effects of price appreciation on loan-to-value ratios since January 2007. Among the core property sectors, only suburban office has an LTV ratio higher than it did at that time. Retail and office properties have thus built up modest equity cushions, bringing down their average LTV ratios, while apartments and CBD office have seen significantly more appreciation than the other sectors, and as a result their average LTV ratios have improved.