Commercial real estate prices in the U.S. dropped by almost 15 percent in 2008, more than home prices, with fourth-quarter depreciation the greatest in the national apartment market, Moody’s Investors Service said in a report.
The price decline eliminated the gains seen in 2006 and 2007 and returned values to 2005 levels, according to the Moody’s/REAL Commercial Property Price Indices. Prices fell 2.2 percent in December from November, said New York-based Moody’s.
Commercial values are now down more than 16 percent from their peak in October 2007, said Moody’s. The deepening recession is causing tenants to cut jobs and vacate space, bringing down building incomes, while the credit freeze is making it difficult to finance property purchases.
“The commercial real estate market has followed the larger economy into a downturn that is likely to last through 2009 and possibly into 2010,” Prudential Real Estate Investors said in its quarterly outlook in January. “With unemployment rising, consumer spending falling and home prices dropping, the recession will impact all sectors of the real estate market.”
Commercial real estate prices fell more than home prices last year. The median price of a U.S. home declined 12 percent to $180,100 in the fourth quarter from a year earlier and sales of properties with mortgages in default accounted for 45 percent of all transactions, according to the Chicago-based National Association of Realtors.
More Declines
Apartment prices fell 11.5 percent in the fourth quarter, leading declines in all four property types, according to Moody’s. Even in the Western U.S., where prices held up better than the country as a whole, apartment prices fell 9 percent in the quarter and more than 16 percent for the year, Moody’s said.
Commercial real estate has farther to fall, judging by the decline in publicly traded real estate stocks. The Bloomberg Real Estate Investment Trust Index fell 41 percent last year in its worst annual performance ever and is down another 31 percent year to date. ProLogis, the world’s biggest warehouse landlord; mall owners Simon Property Group Inc. and General Growth Properties Inc.; office and retail REIT Vornado Realty Trust and Host Hotels & Resorts Inc. led the decline in the REIT index during the past year, each losing more than half their market value.
Moody’s began publishing the commercial property indexes in September 2007 as the basis for financial contracts to let investors bet on property values rising or falling without having to buy physical real estate. The average holding period for a building in the U.S. used to be more than 10 years.
The indexes were designed based on actual sales rather than appraisals.
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