Commercial property hits seven-year low

Chicago: Commercial property values in the US declined in October to the lowest level in more than seven years as unemployment reduced demand for apartments, offices and retail space.

The Moody's/Real Commercial Property Price Indices fell 1.5 per cent in October from September to the lowest since August 2002. Prices were down 36 per cent from a year ago and are 44 per cent below the peak in October 2007, Moody's Investors Service Inc. said in a statement.

Values are dropping as US unemployment climbs and consumers cut spending. Office vacancies may approach 20 per cent next year as employers hold off hiring, commercial property brokers Jones Lang LaSalle and Grubb & Ellis Co said last month.

"The number-one issue facing commercial real estate right now is the value declines that we've seen since prices peaked," Matthew Anderson, a partner at Foresight Analytics in Oakland, California, said before the data were issued. "I tend to think that the size of the declines moving forward is going to be smaller."

‘The worst'

An estimated $1.4 trillion of commercial real estate debt is scheduled to mature over the next five years and Foresight estimates that 53 per cent of it is "underwater", meaning the value of the property is less than the mortgage, Anderson said.

Commercial property values may decline by a total of 50 per cent from the peak to the bottom, Anderson said.

"This is the worst that we've seen since the Second World War," Anderson said.

The delinquency rate for US commercial mortgage-backed securities rose to 4.47 per cent as of the end of November, Moody's Investors Service said on December 10. That's almost six times the year-ago rate of 0.75 per cent.

Delinquencies for commercial real estate mortgages held by banks may rise to 5.6 per cent in the fourth quarter and reach as much as 8 per cent next year, Anderson said.