Pricing Headed Downward...Tell Me Something I Don't Already Know

One thing is 100% certain to me: in the staring contest between buyers/tenants & sellers/landlords, sellers/landlords are going to be the ones blinking first. In what is akin to a Mexican standoff, the vast rift between buyers and seller expectations continue, at least for now.

But time is such a great equalizer, isn't it?

-A

Pricing Skid Suggests Sellers Capitulating to Buyers
Jun 22, 2009 - CRE News

In a sign that sellers are capitulating to buyers' demands, commercial property pricing dropped 8.6 percent in April, according to the Moody's/Real Commercial Property Price Indices, or CPPI.

The April drop is the largest recorded this investment cycle by the all-property component of CPPI, a collaboration of Moody's Investors Service and Real Estate Analytics that tracks repeat sales of properties.

The index stood at 135.31 in April and is 29.5 percent below the peak reached in October 2007, before sales activity began feeling the brunt of the credit-markets dislocation that started in late-summer 2007.

April's drop "suggests that sellers are beginning to capitulate to the realities of commercial real estate markets," which include demands for lower prices, Moody's said in its analysis of the CCPI. The index's second steepest monthly drop this cycle was by 5.5 percent in January.

Moody's further said that financially-distressed sellers became much more prominent in April. It noted that the volume of repeat sales made at prices resulting in losses to sellers was greater than the volume made at financial gains for the first month ever in its recording history.

In a rare bit of market optimism, Moody's speculated, "Large price declines may act as a catalyst to cause the bid-ask gap (between buyers and sellers) to narrow, which in turn may lead to an increasing number of transactions." April's 67 repeat sales, as recorded by the CPPI, compares to 82 in March.

If distressed sellers continue to be more prominent, it could set the stage for future pricing declines.

For the year ended in April, the all-property CPPI component dropped 25.3 percent, with declines across all property types, led by the office sector, which saw a 28.8 percent drop. Multifamily, retail and industrial were down 18.5 percent, 16.1 percent and 12.3 percent, respectively.

Every property sector saw price declines in every geographic region tracked by the CPP. Office prices fell most - 27.2 percent - in the East, followed by a 25 percent drop in the South and 22.2 percent drop in Southern California.

Declines in retail ranged from 7.3 percent in the West to 23.3 percent in the South.

The multifamily sector saw a 21.1 percent drop in the South. That region includes Florida, which saw a 22.5 percent decline. The East was the best-performing multifamily region with an 11.8 percent decline during the year ended April.

Industrial property declines ranged from 28.8 percent in the South to 7.3 percent in the West.