06/24/2009 | By Allen Kenney
New data from the Moodys/REAL Commercial Property Price Indices (CPPI) indicate that commercial real estate prices experienced their largest drop ever in April, falling nearly 9 percent for the month.
The National All Property Type Aggregate Index, a measure of property prices across all sectors and regions, has declined almost 30 percent from the market peak of October 2007. The Index's April 2009 level represents a 25 percent decline from the year-earlier period.
"The largest negative monthly return likely reflects the fact that deals closed were negotiated at the end of 2008 and in the first quarter of 2009, when securities markets and overall sentiment were plunging," said Neal Elkin, president of Real Estate Analytics LLC (REAL). "The question is will this mark the bottom or not."
Despite signs of improving investor sentiment and the recent upswing in the REIT market, Elkin maintained that commercial property appeared to be on a path of "accelerating deterioration."
"I certainly don't feel like the momentum is towards a rally," he said.
While the apartment and industrial sectors held steady, significant decreases in apartment and retail property prices dragged the overall market down. The CPPI's national apartment index was down 18.6 percent in April, while the national retail index declined 12.9 percent.
Elkin noted a significant downturn in "secondary and tertiary" property markets—those outside major metropolitan hubs such as New York and Washington. For example, he pointed out that office property values in New York were down 12.9 percent in the past year, while the national index had declined nearly 30 percent during the same period.
In the report accompanying the release of the data, Moody's researchers noted that the latest results hinted that transaction activity was picking up: "Large price declines may act as a catalyst to cause the bid-ask gap to narrow, which in turn may lead to an increasing number of transactions. We expect that a bottom will begin to form when we see high transaction volumes coupled with flat or declining prices, indicating broad market acceptance of a new price equilibrium."