The BIG CRE Index is a forward-looking benchmark of relative strength of CRE market conditions for community banks. Values are derived from third-party providers and data collected by Banc Investment Group's consulting services group, which provides a loan pricing model used by community banks nationwide. The baseline values reflect the relative condition of each sector compared to the second quarter of 2007.
Conditions in the industrial sector posted the index's largest decline, falling 21.2%, according to Banc Investment Group. Lending conditions in the retail sector dropped 7.7% and fell 7.1% in the office sector while multifamily fell 9%. The data foretells a difficult lending environment for the fourth quarter of 2009 and into the first quarter of 2010.
Banc Investment Group chief executive Chris Nichols says the results "indicate that bankers will face tough challenges in managing their balance sheet in coming quarters and need to be pro-active in addressing problem loans," Banc Investment Group chief executive Chris Nichols says. By Industry, key takeaways from the quarterly report on the index include the following:
Retail
- The retail sector of the index fell to 60.89 in the third quarter from 65.99 in the prior quarter, down 7.73%. The drop was about half as much as compared to the second quarter.
- For neighborhood and community shopping malls, rents fell an average 0.7% during the quarter. Vacancy rates at neighborhood and community shopping malls exceeded 10%, while rates rose nearly 2.5% at regional malls. In both subsectors, the rate of deterioration is only about half that of the second quarter.
- Overall, more than six in 10 markets experienced a rise in vacancy rates, and more than 95% recorded negative rent growth.
- Lending conditions benefitted from a modest improvement in retail sales (less gas and autos). Sales rose 0.6% in August and 0.4% in September.
Industrial
- The industrial sector of the index fell to 43.97 in the third quarter from 55.84 in the prior quarter, down 21.27%. The decrease was tempered compared to the decline between the first and second quarter.
- Vacancies rose again, up an average 3.4% in the quarter.
- With inventory levels sinking, industrial production has turned positive for every month in the third quarter.
Multifamily
- The multifamily sector of the index fell at an accelerated pace of 9.06% to 76.74 in the third quarter from 84.39 in the prior quarter.
- Unemployment rose 30bps from June through September. The average vacancy rate increased 1.3% over the quarter to a 23-year high. The vacancy rate is expected to climb further, although at a slower pace. In tandem, rent growth dropped 30bps.
- Across the U.S., about 65% of metropolitan locations reported a rise in vacancies, while more than five in 10 saw rent declines.
Office
- The office sector of the index fell to 73.07 in the third quarter, down 7.19 % from 78.73 in the prior quarter.
- The sector posted negative net absorption levels with vacancies rising on average near 4% over the third quarter, despite only half the amount of space coming online as the second quarter. Nearly 85% of metropolitan areas experienced a rise in vacancies.
- * Year-to-date, average rents dropped 7%, with nine in 10 areas suffering rent declines.
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