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Morgan Stanley is predicting US commercial real estate prices will stay flat in 2016, down from a previous forecast of 5% growth. The bearish prediction comes as a surprise, considering prices have blown past their pre-financial crisis highs, fueled in large part to investor demand for higher-yield assets.
Commercial Real Estate Prices Are 18% Above 2007 Peak
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“Our analysis shows that a 10 percentage point decline in the loan-to-value ratio requires 2.25% annual net operating income growth to offset the lower leverage,” Morgan Stanley analysts said in backing up their position, Bloomberg reports. In other words, the income from properties needs to rise enough to keep investors happy, while maintaining strong returns.
Decline in Commercial Real Estate Prices If NOI Doesn't Grow
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And that could be hard to do, seeing as several states are already experiencing recessions and fears over a national recession continue to mount. [Bloomberg]
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