NEW YORK Prices for investment-grade U.S. commercial real estate nearly set a record in the second quarter, but the number of sales remained listless, as investors chased stable, high quality properties, while owners of distressed properties held out for better prices, according to MIT Center for Real Estate indexes.
The prices for commercial properties sold by major institutional investors surged 17.3 percent in the second quarter very near the 17.8 percent record increase since the Transaction-Based Index (TBI) was created in 1984. The record was set in the second quarter 2005, in the midst of the last property boom.
The index tracks the prices that institutions such as pension funds pay or receive when buying or selling commercial properties such as shopping centers, apartment complexes and office towers.
But the number of investment property sales the index tracks fell for the second consecutive month and remained at a very low level by historical standards, the center said.
Usually price and volume move together in the property market.
"The mixed signal likely reflects the split nature of the U.S. commercial property market these days, with high investor demand for safe investments pushing prices sharply up from the deep bottom for "trophy" buildings - prime properties fully leased out to solid tenants, while distress in the broader commercial property market and concerns about the economic future keep prices down in other segments of the market." David Geltner, director of research at the Center for Real Estate, said in a statement.
The latest pricing put the index at 159.6, about 31 percent below its mid-2007 peak of 230.26.
Demand for property rose 17.6 percent in the second quarter, according to a separate MIT index measuring buyer sentiment. That index, which had fallen for eight straight quarters from mid-2007 dropped as low as 48 percent below its peak. In the second quarter it was more than 21 percent above its mid-2009 bottom.
The supply-side index, which gauges the prices property owners are willing to accept, also was up a near-record 17.1 percent.
"Such a sharp rise in supply-side reservation prices suggests the deep-pocket investors that characterize the TBI property owners are still largely holding properties off the market, not wanting to sell at prices that they still view as depressed, or anyway not wanting to move money from real estate to stocks or bonds in the current economic climate," Geltner said.
(Editing by Sofina Mirza-Reid)