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Report: National Commercial Property Values Stabilize
NEW YORK -- Commercial real estate property values have remained consistent in the past three months, according to the results of Integra Realty Resources’ (Integra) July 2011 Commercial Property Index. This survey uses Integra’s extensive national database and a polling system to determine the rate of change in property values across the country and in all property types, including multifamily, lodging, industrial, retail, and office.
“The big news in the marketplace is the S&P downgrade of U.S. Treasuries,” said Jeffrey Rogers, President and COO of Integra Realty Resources. “We have analyzed three areas of concern to see how this will affect real estate: corporate spending, government spending and liquidity. In times of uncertainty, corporations hoard cash and delay investments. Unfortunately, those investments include hiring.”
“As for government spending, one thing is clear from the downgrade,” continued Rogers. “The U.S. is not close to solving its deficit problem. Two things will come of this: tax increases, either in the form of higher rates and/or deduction rollbacks, and a decrease in government spending. As the government spends a significant amount of money in the private sector, this decrease in spending will have ripple effects throughout commercial real estate.”
“Finally, as for liquidity, if the monumental retreat in financial stocks continues, the ability of institutions to lend will be curtailed,” concludes Rogers. “In these times, banks tend to get more conservative in underwriting. This has the effect of reducing liquidity as transaction volume decreases.”
This survey shows that the multifamily sector experienced a dramatic increase in value (7 percent) over the past 12 months. In the past quarter, the multifamily sector’s values dropped a bit to an increase of 2.5 percent. All other sectors continued to stay in the positive, and either stabilized (industrial) or fluctuated around 1 percent.
When comparing the regions, the East has demonstrated the best performance, with its multifamily sector increasing 3 percent and its office sector 2 percent in value in the past quarter, while the Southern region has performed the worst, as its office and industrial sectors have had no increase or decrease in value. Property values will incrementally increase across all industry sectors in the next six months, with the exception of Central office and industrial and Southern industrial, which will be stable. Eastern, Southern, and Western multifamily is expected to increase in value the most (3 percent), with Western lodging following closely behind (2 percent).
The Integra survey also shows that commercial real estate continues to be in a recovery mode. That being said, some regions have experienced an increase in the number of distressed assets. The Southern region of the country increases from 39 percent of properties being distressed in Q1 to 47 percent in July 2011. The Eastern region increased from 29 percent of distressed assignments in Q1 to 33 percent in the past three months. The Central region of the country decreased six percent in July to have only 46 percent of assignments classified as distressed assets and the Western region having 30 percent of its assignments classified as distressed assets.
Other charts and localized data are available upon request. For more information, please contact Leigh Sperun at Leigh@GregoryFCA.com or at 610-228-2108.
Integra is North America’s largest commercial real estate consulting firm that specializes in the valuation of commercial real estate. Being an independent valuation firm, the company holds no vested interest in the eventual purchase or disposition of these assets.
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