Moody's: CRE Fundamentals Continue to Deteriorate

By Allen Kenney
The downturn in commercial real estate fundamentals accelerated in the first quarter of 2009, and the trend shows no signs of abating, according to a market analysis conducted by Moody's Investors Service.
Moody's listed a host of measures indicating a weakening in the overall commercial real estate market, including deteriorating demand projections, growing oversupply of properties and increasing vacancy rates.
"Given the bleak forecasts, any significant improvement… is unlikely in the next several quarters," Moody's analysts noted.
The analysis, known as the "Red-Yellow-Green" report, creates scores intended to measure the health of different commercial real estate sectors and regional markets. Five of the seven sectors covered—industrial, multifamily, full-service hotels, limited-service hotels, retail, central business district offices (CBD) and suburban offices—saw their scores decline in 2009's first quarter. The hotel sectors' scores, which had no room left to deteriorate from the prior quarter, were the only two not to fall.
Moody's noted that 54 percent of the regional markets included in the study had scores in the "red" zone. Such markets are "already under imminent stress," with property supplies well exceeding demand and vacancy rates that are either high or rising dramatically. The share of "green" markets fell from 14 percent in the previous quarter to 8 percent. These are thought to be "landlord's markets," in which demand exceeds supply and vacancy rates are either low or declining sharply.