January 20, 2010 / 10:58 PM / 10 years ago

US commercial property price up in November -study

NEW YORK, Jan 20 (Reuters) - U.S. commercial real estate prices rose 1 percent in November, the first increase in more than a year, according Moody’s/ReAL Commercial Property Price Indices (CPPI).

Still, Moody’s expects prices to resume falling in the coming months as occupancy and rental rates continue to fall and yields, also called “cap rates,” rise. When cap rates — which are related to interest rates and risk — rise, prices fall.

“Those things together will result in lower property values,” Moody’s analyst Connie Petruzziello said on Wednesday.

The declines should be less severe than those in the middle of 2009, some of which were greater than 5 percent, Moody’s said.

“The positive 1 percent return recorded in November represents a bit of good news for the commercial real estate market, but the sector is not yet out of the woods,” Moody’s Managing Director Nick Levidy said in a statement. “We anticipate further deterioration in property fundamentals and increases in cap rates, although the worst of the value declines is likely over.”

Moody’s has said that it expects U.S. commercial real estate prices ultimately to fall between 45 and 55 percent from their peak prices reached in 2007. With the incremental rise, prices have fallen 43 percent as of November.

The Moody’s/REAL Commercial Property Price Indices (CPPI) measure the change in sale prices for commercial real estate property based on the repeat sales of the same assets at different points in time.

The index that measures all property types posted a gain in November for the first time since September 2008, according to Moody’s. Sales declines began moderating after April’s 8.6 percent drop.

Sales volume in November fell somewhat at some 362 sales valued at $4.1 billion, yet that was relatively consistent with sales since February. Lower-priced properties, in the range of $2.5 million to $5 million, continued to comprise the largest chunk of sales.

Prices for properties with short-term leases, such as apartment buildings, may show signs of a sustainable recovery later this year, while other property types will likely need longer to turn the corner, Moody’s said.

Levidy says prices for properties with short-term lease structures, such as multifamily properties, could show signs of a sustainable recovery later this year, while other property types will likely need longer to turn the corner. (Reporting by Ilaina Jonas, editing by Matthew Lewis)

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