The fundamental tenet of Newtonian physics is that anything that ascends will eventually descend under the force of gravity unless it is caught by a soaring eagle. The Green Street Commercial Property Price Index indicates that, overall, this is what occurred to commercial real estate property prices in the second quarter of 2022.
The index, which is defined as a “time series of unleveraged U.S. commercial property values that captures the prices at which commercial real estate deals are currently being negotiated and contracted,” fell by 3.7 percent between May and June. 4.9 percent of the value has been lost overall from the peak point in March.
Overall, that is a 10% increase over the previous 12 months and a 10% increase since pre-covid periods.
Peter Rothemund, co-head of strategic research at Green Street, stated in prepared remarks that “the repricing that has occurred in bonds and stocks is finally evident in the commercial property market.Price discovery is still taking place, and economic uncertainty and interest rate volatility make that challenging, but prices of most properties are down 5%+ from recent highs. In a few sectors, pricing has held up better.”
By property type, performance varies considerably. Strip retail (down 7%) and net lease were the two worst-performing sectors between May and June (also down 7 percent ). Since before the pandemic, strip retail had increased by 7%, and in the past year while economies were recovering, it had increased by 15%. Before Covid, net lease saw a 6% growth and a 5% 12-month growth.
It’s interesting to note that the third highest decline, from May to June, was in the industrial sector, which has been particularly hot since the epidemic, growing at a rate of 42 percent and rising 15 percent over the past 12 months.
Manufactured home parks have done well generally, with a 17 percent growth over the past 12 months, up 33 percent prior to Covid, and no loss between May and June, despite general stresses on the availability and cost of rental accommodation.
Another industry that has fared well in the face of economic and societal pressures is self-storage, which has grown by 58 percent since before Covid, by 28 percent over the past 12 months, and by a lower-than-average 4 percent during the most recent recorded month.
Office decreased by only 4% in the most recent month, but was down 1% over the previous 12 months and -9% since before the epidemic. Consequently, the net result is negative.
Multifamily has increased by 15% over the past 12 months and by 16% since before the epidemic, although it has decreased by 4% during the past month.
After the sharp rise in prices in so many categories over the previous two years, it was fair to wonder how much higher prices, as well as rents paid by consumers and businesses, could rise. There were numerous indications that price growth was beginning to slow down.
