Commercial Real Estate Rises

Feb. 22 (Bloomberg) — U.S. commercial property values had their biggest monthly rise on record in December as the number of transactions jumped, according to Moody’s Investors Service.

The Moody’s/REAL Commercial Property Price Index climbed 4.1 percent from November, the second straight monthly increase, Moody’s said today in a report. Transaction volume rose more than 75 percent from the previous month. Values, which fell to a seven-year low in October, are down 29 percent from a year earlier and are 41 percent lower than the peak in October 2007.

Okay, two months doesn’t make a trend but this is better than a sharp stick in the eye. I do not believe that commercial real estate will be the disaster that everyone is waiting on. Yes, properties will pass from weak to strong hands and there will be some writedowns at the banks, but this isn’t 1990. Vacancy rates are 15-17% which isn’t good but those rates were well over 20% in the early 90s. And considering 9.7% unemployment, that vacancy rate isn’t as a bad as I would have expected frankly. I have always operated on the quaint notion that I don’t need to worry about the things that everyone else is already worrying about and everybody is worried about commercial real estate. If anything I am more interested in buying than selling.

One Response to Commercial Real Estate Rises
  1. Call it what you want since the outcome is the same. Commercial real estate is overbuilt, with a huge excess of capacity. Since job numbers and general wealth of Americans has lost a decade already, and furthermore since our basic attitudes towards spending have changed, it seems to me that every bit of commercial real estate built in the last decade was a bubble. Some of the new buildings will displace older buildings but the net effect is the same and easily visible in my community and probably most communities around the US… empty store fronts galore, and often in brand new buildings. A bubble is a bubble. Commercial real estate development over the last decade occurred at a rate suitable for an economic outcome that proved illusory and overly optimistic.

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