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Commercial Real Estate Index Shows Promising Signs

10/26/2010 | By Allen Kenney

Commercial real estate property values showed general signs of stabilization and improvement in the third quarter of 2010, according to the latest data from Integra Realty Resources.

Per the Integra Commercial Property Index (CPI), multifamily properties represented the only sector to register an increase in value last quarter, up 2 percent for the three-month period. However, Integra's projections indicate that, aside from retail, all sectors will either hold steady or experience gains in the next six months.

Jeffrey Rogers, Integra's president and chief operating officer, told REIT.com that the latest CPI results should be taken as welcome news for not only the commercial real estate industry, but the broader economy as well.

"In our current economy, we are seeing so many mixed signals, but this is a clear and strong signal that recovery is occurring," Rogers said. "Overall, we are in better shape than this time last year. It is very encouraging that we are seeing some other property types other than multifamily showing signs of stabilization at the same time company earnings are increasing, and national banks are stronger."

Rogers tied the struggles of the retail sector to the housing market.

"Retail tenants are not seeing the increase in sales, as consumers are remaining conservative amid the continuing problems in the housing market," he said. "Retail will continue to lag until housing performs better."

Meanwhile, improving corporate earnings are encouraging office tenants to plan for growth, according to Rogers.

"During this time last year, most companies saw earnings decreasing or had very little visibility," Rogers said. "Now, they are experiencing increased earnings and better prospects."

In the last 12 months, multifamily property values had decreased 2 percent, the smallest decline of all sectors. The industrial, retail, lodging and office sectors all witnessed declines on the order of 6 percent to 8 percent.

Rogers attributed the relative strength of the multifamily sector to the liquidity provided by Fannie Mae and Freddie Mac. Additionally, an improving employment picture has caused tenants to start renting again or change locations, according to Rogers.

The recovery in the industrial sector appears to be the most tenuous, noted Rogers, who described the outlook for industrial properties as "tricky." Continued improvement in the global economy is paramount for the sector's recovery, he said.

"The world is a very different place from just a few years ago, and depending upon the age, size and, more importantly, location of industrial properties, the outlook will change dramatically," Rogers said. "Retailers have learned to live with less and manufacturing is in transition."