CRE Pricing Continues to Stumble

As the economy continues to struggle, commercial real estate prices remain on a downslope. 2008 saw negative price growth across all indices, the first time on record dating back to January 2001, according to the latest report from the Moody’s/REAL National All Property Type Aggregate Index from Real Estate Analytics L.L.C., the latest in a series of worrisome idicators for the industry released over the past week.The report’s index measures 164.00 for November–a decrease of 3.4 percent over the previous month–making it the second largest monthly decline in the history of the index. Representing a decline of 14.5 percent over the past 12 months, it indicates that prices have fallen back to levels not seen since April 2006.  “According to the data, the average transaction price has fallen from its peak of $29 million at the end of 2006 to slightly more than $13 million in 2008,” said Neal Elkin, president of REAL. “It appears that the CPPI index has resumed a downward trend that was begun a year ago.  Also, repeat sales activity has declined among trophy properties and high end assets as liquidity has become scarce,” he added.The report follows other troubling indicators as of late. On Feb. 6, CPN reported that commercial real estate assets are likely to see rents fall and vacancies rise throughout 2009, according to a report issued by NAI Global. The report predicted that vacancy across all product types worldwide could increase by 150 to 200 basis points as the year progresses, with rental rates falling in the 10 to 20 percent range. “It will be late 2009 to 2010 before we are going to see the beginning of a resurgence,” said Jeffrey Finn, NAI Global’s president & CEO. In a forecast and analysis of the U.S. economy, Dr. Peter Linneman, NAI Global’s chief economist, predicted that the American economy will see positive growth return in the third quarter. Job growth should return to the U.S. a quarter of two after positive GDP growth returns, with commercial real estate vacancies and rental rates then starting to firm, he added.