Giving back a small portion of the gains witnessed since the financial crisis, commercial property values were down 1 percent in July, according to data from Green Street Advisor’s Commercial Property Price Index (CPPI).
Green Street noted that values increased by 3 percent in May, fully recovering the ground that was lost during the last downturn and putting them above their 2007 high. That momentum slowed some in June as property values were unchanged.
The firm’s Aug. 6 report indicated that the recent rise in interest rates is weighing on pricing, causing a slowdown in values as the momentum from the recovery takes a break.
“Property prices took a breather in July while waiting to see where interest rates would settle,” said Jason Moore, an analyst with Green Street Advisors. “But the increase in rates we’ve seen over the last couple of months simply brought expected returns on real estate back in line with historical norms versus bonds.”
The apartment sector values were down the most this month, 3 percent. Moore attributed that directly to issues surrounding a rise in the interest rates.
“Apartments were affected by a large increase in borrowing rates at Fannie Mae and Freddie Mac, which account for roughly 50 percent of new multifamily mortgages,” he said.
The office sector was down 1 percent.
“Office values declined as our team saw signs of higher than expected cap rates for deals recently closed or still being negotiated,” he said.
The industrial, mall, strip retail and lodging sectors remained unchanged in both June and July.
Manhattan Offices Hold Steady
Green Street also released its Midtown Manhattan Office Price Index report for July. The index showed that property values held steady for the month.
The index is approximately 10 percent below its 2007 peak at present, which the Green Street said is on par with pricing from early 2007.
Public companies own properties in midtown Manhattan exceeding $35 billion in the aggregate, or 30 percent of the total market value of all office REIT assets in the United States.