"Two months of positive returns and one month of higher transaction volume does not allow us to discern a trend just yet, particularly in light of the fact that year-end commercial real estate activity can distort the true condition of the markets," according to the report. "We will need to see data from the first few months of 2010 to develop a clearer picture of where things stand." Furthermore, the report notes that commercial prices are still off 40.8% from their peak.
The 716 repeat transactions recorded in December, totaling $9 billion, represented a 75% gain in count and a jump of more than 100% by dollar value from the prior month. While higher sales volume in and of itself can indicate that a market bottom may be approaching, the report points out that December often records a large upswing in volume, due to both buyers and sellers working to close deals by year's end. "Last year was no exception, so we will have to wait for transaction volume data in coming months to determine if this represents a permanent turn in market activity," according to the report.
Commercial property prices declined 29.2% during '09, with a significant portion of value declines occurring in the first half of the year, the report states. Price declines averaged 4.2% in the first six months of the year compared to 1.4% in the second half.
Although this suggests a tapering off, the report says further price declines are likely even if a market bottom is near, and "a market in transition" can result in "choppy index returns" for several months. However, the report states, "we do feel that the period of large price declines is over."
"Eventually, however, higher transaction volumes will enhance the price discovery process, removing the uncertainties that have kept many potential buyers on the sidelines waiting for the bottom to arrive and many potential sellers hoping for better markets before committing to a sale," according to the report. "At that point we would expect to see more consistently flat to positive returns as a recovery takes hold." The report cautions that such a recovery is broadly dependent on an economic upturn.
Led by co-founder and president Neal Elkin, REAL produces the indices for Moody's using data from Real Capital Analytics. It publishes 29 indices: one national all-property, four national, four top ten MSAs, 12 regional and eight MSA-level. The national indices are published monthly, while the regional and market-level indices are published quarterly.
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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.
