Spiking demand, coupled with falling asking prices, has yielded an increase in third quarter transactions for US commercial real estate. This represents a second consecutive quarterly gain, which strongly suggests the start of a turnaround in the market. Transaction prices were up as well, while a surge in the demand index indicates a renewal of market confidence that is helping to close the gap in the price index from its peak in ’07. For more on this, see the following article from HousingWire.
Transaction prices rose 4.4% on commercial real estate properties sold in Q309 by major institutional investors, according to the MIT Center for Real Estate (MIT/CRE).
The gain marked the first positive price change in more than a year for the Center’s transactions-based index (TBI). It is also the largest increase since before the market downturn began in mid-2007, according to MIT/CRE.
The findings indicate the US commercial property market may have reached bottom in terms of pricing, the Center said, with the price index narrowing the deficit from its ‘07 peak to -36.5% in Q309 from -39% in Q209.
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The TBI, based on prices of closed deals, also tracks separate movements on the demand and supply side of the institutional property market.
“The big news this quarter is not just that the price index increased, but that transaction volume substantially increased for the second quarter in a row, reflecting the first increase in market sentiment in two years,” said professor David Geltner, director of research at MIT/CRE. “Our demand index, which tracks the prices that potential buyers are willing to pay, posted its first increase after eight consecutive quarters of decline, and it was a robust 12% jump.”
The demand-side index is now only 42% below its mid-2007 peak, from 48% below in Q209, according to Geltner.
The supply-side index, which measures the price sellers are willing to accept, continued its fall in Q309, dipping a “modest” 2.5% to a level 30% below its peak, according to MIT/CRE research technician Holly Horrigan.
“The combination of the upsurge in demand and the continued drop in sellers’ prices led to the strong increase in transaction volume and the beginnings of a reliquification of the market,” said Horrigan.
Geltner added: “One quarter does not a trend make, and we are still well below normal trading volume. Nevertheless, this is the strongest sign of a bottom that we’ve had in two years.”
This article has been republished from HousingWire. You can also view this article at HousingWire, a mortgage and real estate news site.
