Commercial property prices fall in May -Moody's

NEW YORK, July 21 (Reuters) - Commercial real estate prices fell 3.5 percent in May, the biggest drop since at least December 2000, as a slowing economy took a toll on property values, Moody's Investors Service said on Monday.

Commercial real estate prices, as measured by Moody's/REAL Commercial Property Price Index, are down 5.7 percent from a year earlier and 8.8 percent from their peak in October 2007, Moody's said in a report.

May's decline marked three straight months of negative returns for the index, Moody's said in a report.

"The economy is softening and property prices are now beginning to reflect that," Moody's senior credit officer Andrea Daniels said in an interview.

Moody's began publishing its index in September 2007 but has data allowing it to calculate index numbers going back to December 2000.

The average price of real estate transactions has also dropped, reflecting a shift to lower-priced sales and fewer high-end or trophy properties, Moody's said.

In May, almost 75 percent of all transactions were on assets priced less than $7.5 million, compared to 50 percent in May 2007, Moody's said.

Separately, Fitch Ratings said on Monday that troubles in the retail sector helped push delinquencies slightly higher in June on bonds backed by commercial property, known as commercial mortgage-backed securities.

U.S. CMBS delinquencies overall, as measured by a Fitch loan delinquency index, rose to 0.41 percent in June from 0.39 percent in May.

A retail sector delinquency index rose to 0.21 percent from 0.17 percent in May, Fitch said. Though the increase was small, Fitch said it is concerned about the sector as consumers' disposable income falls and bankruptcies increase.

"Recent store closings, including continued bankruptcy filings of tenants such as specialty retailer Linens 'n Things and discount-apparel retailer Steve & Barry's, will impact retail performance," Fitch said.

Delinquencies also ticked higher in the office sector, though it continues to perform relatively well, with 0.19 percent of all office loans in Fitch's rated universe delinquent, the rating agency said.

"Though rent growth has slowed and vacancy rates are beginning to climb slightly, most major metropolitan office markets continue to perform as expected," the report said. "Office market weakness to date has been most evident in smaller cities and suburban markets hit hardest by challenging economic conditions." (Reporting by Dena Aubin; Editing by Leslie Adler)