Investment-grade commercial real estate prices gained 4.4% in the third quarter of this year. But, it's hard to tell if -- like brief blips of hope we've seen in consumer spending, unemployment and even luxury meals in London -- this is a change in the market or just a tease.
This increase in the MIT Center for Real Estate's transaction-based index (TBI) is the first up-tick in more than a year and the biggest gain since the middle of 2007. One quarter doesn't make a trend, cautions David Geltner, director of research at the MIT Center for Real Estate, but he says, "this is the strongest sign of a bottom that we've had in two years." The TBI reached 36.5% below its 2007 peak last quarter, up from 39% from the high-water mark in mid-2007.
Also, transaction volume has increased quarter-over-quarter. In the second quarter of 2009, only 42 transactions were completed -- compared to 90 in the next quarter. Geltner says, "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."
The commercial real estate market has been brutal for the past two years. Some borrowers are dealing with financing shortfalls when loans come due, while others are worried they won't even make it that far, and are fighting to make their monthly payments. Commercial mortgage-backed securities delinquency rates hit 4.8% last month, up from 4.36% in September and far above the 0.77% October 2008 level.
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