Commercial real estate prices in the US declined in January for the first time since 2010, an indication that the six-year climb of property prices may have reached a peak, experts say.
The 0.3 percent dip in the Moody’s/RCA Commercial Property Price Indices (CPPI) last month follows a price flattening in December, according to new report from Moody’s.
“We consider this a significant milestone that signals that a shift in sentiment among commercial property investors is underway,” said Tad Philipp, director of CRE research at Moody’s.
The dip reflects a market shift that began at least six months ago as investors become less willing to pay record prices for property, Jim Costello, senior vice president at RCA, told Real Estate Capital. But he does not anticipate any prolonged price declines.
“We may start to see a trend towards a more overall flattening,” Costello said. “One month the index may go up and one month it may go down, [but] prices on average by year end will not be that different.”
The Moody’s report says that office and industrial property prices each fell by more than 1 percent in January, while retail was the only core commercial property sector to show a gain, with prices rising 1.1 percent.
The report also looked at the effects of price appreciation on loan-to-value ratios since January 2007, but only those of suburban office increased.
“Retail and office properties have built up modest equity cushions that have brought down their average LTV ratios, while apartments and CBD office have seen significantly more appreciation than the other sectors, and as a result their average LTV ratios have improved,” the report stated.
Moody’s/RCA CPPI measures price changes in US commercial real estate based on “repeat-sales,” or completed sales of the same properties.