Containment? Commercial Real Estate Down Sharply

So much for containment? What a cute little pipe dream theory that was. The credit crunch has clearly moved from subprime, to all of residential and is now sinking it’s teeth in to commercial real estate. While year-over-year price gains are barely up the property prices are all off their peaks from 2007 and we expect that the credit and liquidity issues that have put the hurt on residential real estate will begin to manifest themselves more acutely in the commercial markets as well.

Of course the bubble areas identified by big residential runups such as California and Nevada are seeing the biggest declines in commercial real estate prices as well.

The latest report from Moody’s highlights the 2.3% drop in the Commercial Property Price Index which is the biggest one-month decline since the index’s inception. All commercial product types tracked were down off their 2007 highs.

The graph below shows the CPPI leveling off with the beginnings of a slight downward trend.

From the Research Recap blog on the price decline in the commercial market:

Quarterly data on of the index?s four property types show all products off their peak prices for 2007. Retail is off the most, down -5.7, while apartments are down -3.4%. Offices, down -2.0%, and industrial, down -2.3, show the least decline.

The West had the dubious distinction of being home to the worst performing asset in the report – offices in the region – where prices dropped by 5.1% from the previous quarter, much steeper than the decline in the national office sector (-1.2%) or in the Top Ten cities (-0.6%).