Decoding the Commercial Property Price Index: A Deep Dive into November's Figures
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Episode Transcript:
In the landscape of U.S. commercial real estate, the latest numbers from Green Street indicate a notable decline. Their Commercial Property Price Index took a 3% dip in November, marking a year-over-year decrease of 10% and a substantial 22% drop from its peak in March 2022.
Green Street's Co-Head of Strategic Research, Peter Rothemund, shed light on the factors at play. The recent surge in bond yields during September and October put the brakes on real estate transactions, but the narrative is evolving. Rothemund shared optimistic insights, stating, “The good news is that bonds have staged an epic rally since, and commercial property is now fairly priced vs. corporate bonds. Property pricing may well have hit bottom.”
Despite this positive outlook, the road to recovery may be a gradual one. Some economists predict that interest rates won't see a decline until late 2024 at the earliest. Consequently, sales activity and valuations might face an extended timeline for resurgence.
Taking a closer look at Green Street's index, the core sector, comprising apartments, industrial, office, and retail assets, witnessed a 25% downturn from March 2022. Office spaces bore the brunt of the decline, experiencing a sharp 35% drop from the peak and a 25% decrease from the same period last year. Multifamily assets closely followed suit, with a 30% decrease from the peak and a 12% year-over-year drop.
Beyond the core sectors, Green Street's index also monitors healthcare, malls, lodging, manufactured home parks, self-storage, and strip retail properties. The evolving dynamics suggest a realignment in the commercial real estate landscape, with the potential for a rebound on the horizon.
This is Tyler Cauble, Signing off