US commercial property falls 21% through September

NEW YORK: US commercial real estate values fell more than 21% in the first nine months of this year, as the highest unemployment since 1983 weakened demand, Investment Property Databank Ltd (IPD) said on Nov 16.

The value of offices, shops, warehouses and rental homes dropped 5.2% in the third quarter from the previous three months, according to IPD’s US Quarterly Indicator. Commercial property values fell 12% during all of 2008, IPD said. The London-based company started its US index in May.

“Just as the world’s largest economy emerged from its most severe economic crisis since the Great Depression, US real estate market values continue to deteriorate,” Simon Fairchild, IPD’s managing director for North America, said in the statement. “Most of the market is expecting a peak-to-trough decline of 40%, which would bring the US close to the world’s worst affected real estate markets, the UK and Ireland.”

Moody’s Investors Service estimates that US commercial real estate prices have already plunged almost 41% from their October 2007 highs, the company said on Oct 19. US job losses mean employers need less office space, while falling consumer confidence is hurting retailers and their landlords. Hotel revenue and values are off as well, beset by a decline in travel.

Offices and industrial properties have lost the most value this year, according to IPD. Its index combines property values with rental income to determine total return. Investors lost 3.6% overall in the third quarter including rental income, and 17% so far this year.

The 17% decline compares with a 19% return on equities over the same period, the firm said.

IPD applies the same methodology to surveys of 50,000 properties in 25 markets worldwide. The Quarterly Indicator is based on almost 2,000 properties valued at US$80 billion (RM269.28 million). – Bloomberg LP
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