Moody's Red-Yellow-Green report is a quarterly update on the well-being of commercial real estate markets that support commercial mortgage backed securities. Cities that had green scores in multiple categories are New York, Orange County, CA; Richmond, CA; Riverside, CA; San Antonio, TX; and Ventura County, CA.
According to Moody's, the CBD office sector nationally can best be described as stable. Absorption is up slightly from last quarter, to +0.6% from +0.3%. The supply pipeline remains a non-threat to most markets--a welcome contrast from the last real estate cycle. Baltimore is also expected to see more robust demand growth in the next year than was expected last quarter. Washington, DC, with a vacancy rate of 7.5%, is the lowest of any of the 46 markets as well as one of only four cities with single-digit vacancy rates. The others are New York City at 8.6%, Charlotte, NC at 9.2%, and Ft. Worth at 9.4%.
Multifamily is hot this quarter. It moved into the greenest-green segment of the matrix with a score of 84. The composite score for neighborhood and community shopping centers remained unchanged at a green 83.
The suburban office score remained unchanged at a yellow 48. Supply is up slightly over last quarter, from 1% of inventory to 1.2%. Following a gradual rise over several quarters, the industrial sector has at last slipped into green with a score of 67. Vacancy is flat from a year ago at 11.4%, and down a bit from last quarter's 11.7%.
"Commercial real estate has benefited from 20 years of falling rates, but that honeymoon may be over," said Tad Phillip, managing director. "The theory is rising rates equals rising economy equals rising rents. The reality is the laws of supply and demand still apply to real estate."
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