Commercial Market Performance Sharply Split
March 23rd, 2011
The commercial real estate market is definitely making a recovery, but the recovery is by no means evenly distributed. According to Moody’s Investor Service, “larger properties in major markets [are] recovering value while distressed properties remain well off the peak”[1]. In this new market, property values are more dependent than ever on asset quality, which could put many commercial property owners in a bind thanks to the rampant – and often less-than-optimal – construction that went on during the boom years. This issue has the potential to slow the overall commercial recovery as distressed property sales continue to weigh down the market[2].
In January of this year, the sale of distressed commercial properties accounted for 26 percent of repeat sales. Moody’s report indicates that while this is “reflective of the overall property sales market at this time” it is unlikely that there will be dramatic “upward momentum until the share of distressed sales diminishes. With investors focusing on prime properties that are high quality even when they are searching for distressed sale options, this could take a while. However, rental vacancies continue to fall and interest in other commercial sectors is still on the rise which, overall, bodes well for the commercial market.
What type of commercial real estate interests you?
Thank you for reading REJournalOnline’s Commercial Real Estate Letter!
Your comments and questions are welcomed below.
[1] http://www.dsnews.com/articles/moodys-sees-vast-divergence-in-distressed-vs-non-distressed-2011-03-22
[2] http://www.housingwire.com/2011/03/22/distressed-property-sales-continue-to-weigh-down-cre-prices
March 23rd, 2011 at 6:19 AM
This is a very important aspect that most people don’t get. I spoke of this exactly scenario in the 2011 outlook I did for NAR Radio in Dec. 2010. The recovery is not evenly distributed.