03/07/2012 | by Carisa Chappell

Commercial property values went unchanged from February to March and have been drifting sideways following a two-year rally, according to new data from Green Street Advisors' Commercial Property Price Index (CPPI).

Prices rebounded to within 10 percent of their all-time highs during the rally, but have struggled to gain any traction since the summer of 2011. Overall, values are up 11 percent in the past 12 months.

Peter Rothemond, analyst with Green Street Advisors, recently spoke with REIT.com about some of the recent trends in pricing.

REIT.com: The CPPI seems to be at a standstill. What will it take to see a rebound in pricing?

Peter Rothemond: Well, besides multifamily, property values haven't really moved since last summer. But when you compare the return expectations on real estate versus bonds, real estate looks attractive. We say over, maybe, the next six months, values should go up. I wouldn't say a ton, but, say, 5 percent or so.

I don't know what necessarily will be the spark for that. I think it would be investors getting comfortable with the strength of the economic recovery. The economy is actually growing. It'll just take them getting comfortable knowing that it is sustainable.

REIT.com: What factors have contributed to some sectors having stronger or weaker property values?

Rothemond: Multifamily has been the strongest, because people prefer renting than buying houses these days. Everything else has been about the same.

Just in terms of who hasn't gotten back to their peak, I would say that office and lodging properties are furthest from the peak. I don't know if that necessarily means they are the weakest, because a lot of that has to do with the fact that their values had been higher than the other sectors. They flew higher than everyone else, so your bar is higher for saying that you are back to peak levels.

Also, industrial properties haven't really been that strong. It seems like retailers are making due with less inventory, and that's not good for the industrial space.

REIT.com: According to your price index, in Manhattan, the country's largest office market, property values are 20 percent below their previous highs. What is the biggest challenge facing the Manhattan office market today?

Rothemund: The outlook there is kind of just muddle along.

There will be a little bit of growth, but what happened is that the financial services industry used to be the big driver of space needs in New York, especially at the high end. While financial services are not totally gone, the sector is a lot weaker than it was. Back in 2006, everyone thought rents were going to grow a ton, because the financial services industry was booming and people thought that it would continue to do great. That definitely was not the case.

A lot of the demand has been taken up by other industries such as law firms and such, but you just don't have this great outlook anymore, because the financial services industry is not what it was.

REIT.com: Has there been a sizable difference in pricing trends between primary and secondary markets?

Rothemond: That's really hard to measure. I would say there has been, and the gateway cities have been stronger than the markets in the smaller cities. But it's very hard for me to quantify that.