U.S. Commercial Property Rises For Second Consecutive Month, Moody's Says

U.S. commercial property prices rose 1.3 percent in October from the previous month, the second consecutive monthly gain, Moody’s Investors Service said.

The Moody’s/REAL Commercial Property Price Index climbed 3.2 percent from a year earlier, Moody’s said in a report today.

Demand is rising for the best office buildings in major markets including New York, San Francisco and Washington as buyers seek returns higher than fixed income. Investors may begin buying lower-quality buildings in major markets and top- tier buildings in secondary markets next year, said Robert Bach, chief economist for Grubb & Ellis Co., a Santa Ana, California- based commercial broker.

“This investor enthusiasm has been confined to core properties in primary, supply-constrained markets,” he said in a telephone interview before the data was issued. “There’s still a lot of distress out there.”

The Moody’s/REAL index is 42 percent below its October 2007 peak. The gauge measures overall commercial property values on a monthly basis and breaks the numbers down by property type once each quarter. The changes are based on repeat sales transactions.

U.S. commercial property sales more than doubled to $16 billion in the third quarter compared with a year earlier, according to Real Capital Analytics Inc., a New York-based real estate research firm.

Prices for eastern U.S. office buildings gained 22 percent from a year earlier, according to Moody’s. Washington properties rose 17 percent and New York buildings climbed 9.1 percent.

Green Street, CoStar

Values for commercial property rose 2 percent in November, Green Street Advisors, a real estate research company in Newport Beach, California, reported Dec. 2. The company’s index is up more than 30 percent from the 2009 low. Its property index is 20 percent below its 2007 peak.

CoStar Group Inc., a real estate data service based in Washington, found that prices for investment-grade properties in the U.S. fell 1.1 percent in October from September. Values were unchanged from a year earlier and down 29 percent from two years ago, according to the company.

CoStar, unlike Moody’s, tracks transactions of less than $2.5 million. CoStar also limits its index to Class A and B offices, the highest-quality buildings; retail and industrial properties built since 1990; and multifamily buildings of 30 units or more.

Green Street’s index includes deals that are in negotiation or under contract, while Moody’s tracks only closed sales.

To contact the reporter on this story: Brian Louis in Chicago at blouis1@bloomberg.net

To contact the editor responsible for this story: Kara Wetzel at kwetzel@bloomberg.net

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