"This month is not unexpectedly bad news like the two previous months," Neal Elkin, president of REAL, in a release accompanying the newest Moody's/REAL National All Property Type Aggregate Index. "It could signal the beginning of a gradual tapering of the decline, the beginning of the final stage of the price correction from the lofty bubble of two years ago."
Nonetheless, the June index of 123.82 represents a 35.5% drop in prices over the past two years, and a 33.9% decline below the peak measured in October 2007. According to REAL, properties purchased between 2005 and 2008 have now suffered price drops of more than 20%, with the declines largest for those purchased two years ago.
Four months ago, properties purchased in 2004 had embedded price appreciation averaging 15.2%, but now those assets have seen values fall by 5.3%, according to REAL. While properties purchased in 2003 currently have positive imbedded appreciation, "those gains will be wiped out" if there's a 40% overall decline in values peak to trough. As it is, the REAL index is back to a level last seen in February 2004.
After declining 18.6% in the first quarter, national office values saw a 4.1% price gain in the second quarter, the only index in the new report to reflect an increase. The gain means office prices are off 27.4% from the peak, except in the West, where the drop of 15.4% from Q1 to Q2 meant a cumulative peak-to-trough drop of 34.9% in office values for that region.
Nationally, prices of retail assets fell 7.9% in Q2, according to REAL. On top of 18.6% declines in Q1, national retail prices have fallen 29.1% from the peak.
For apartment and industrial properties, the opposite was true: Q2 pricing performance was considerably worse than it was in the first quarter. Both sectors experienced drops of just 0.4% nationally in Q1, but apartments declined 16.3% and industrial plummeted by 20.4%. Nationally, apartment prices have incurred the steepest peak-to-trough decline at 32.2%, while industrial is not far behind with a falloff of 31.8% since the market peaked in Q3 '07.
REAL's indices for the top 10 MSAs all showed declines from Q2. However, they're uniformly in better shape than the national indices on a peak-to-trough basis.
For June, the total number of sales was up 25%, to 437 transactions. The dollar volume of $4.4 billion represented a gain of nearly 40% over May. Of these, 87 were repeat sales with a dollar value totaling $1.1 billion, nearly two and a half times the total measured in May. The Moody's/REAL indices are based on transaction data from Real Capital Analytics.
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Paul Bubny
Paul Bubny is managing editor of Real Estate Forum and GlobeSt.com. He has been reporting on business since 1988 and on commercial real estate since 2007. He is based at ALM Real Estate Media Group's offices in New York City.
