Green Street: Falling Commercial Property Prices Are At Or Near Bottom

Commercial real estate values continue to drop, but after a year of rapid interest rate hikes, investment advisory and research firm Green Street says the bottom is close — or already here.

Green Street’s Commercial Property Price Index, which tracks all sectors of CRE, is down 14% from its peak reached last March, falling 0.6% from December to January. Core sectors — office, industrial, multifamily and retail — are down 17% from their peak, per Green Street's latest report, released Monday.

“Commercial property prices are down about 15% from their peak,” Peter Rothemund, co-head of strategic research at Green Street, said in a statement. “Most investors would probably agree with that, even if the yearly appraisal of their properties might suggest otherwise. So, while appraisals are likely headed lower, the real-time picture of property pricing shows a market where we’ve either reached bottom or are very close to it.”

The index monitors price points of sale negotiations and contracts in order to track property values. When it comes to asset types, apartment values have taken the biggest hit — down 20% in the last year, the index shows, with a 1% fall in the last month. Malls are also down 20% in the last 12 months, with a 2% month-over-month drop.

Office prices are down 17% from their March peak, but their price decline is accelerating with a 4% fall in the last month. Industrial prices are down 15% but haven't fallen at all in the last month.

Rising interest rates have brought sales to a screeching halt. National investment sales were down 63% year-over-year in the fourth quarter, according to CBRE.

In the country's largest commercial real estate market, Manhattan sales volume in the fourth quarter was $3.3B across 75 sales, representing drops of 12% and 32% from the trailing four-quarter average. Average cap rates rose to 4.97% while the average price per SF on properties is down 11%, per Avison Young data.

Meanwhile, there is significant loan volume maturing in the city, largely in the office market. In total, more than $16B in CMBS loans backed by New York City commercial real estate will mature through 2023, according to Trepp data.

“I think more lenders are going to be accommodating, because at this point in time, potentially there's a 50% devaluation in the asset class,” Square Mile Capital Managing Director Samir Tejpaul said of office properties at a Bisnow event in New York last week. “So [lenders are] all incentivized to try and find you more time to work through the situation.”

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