property prices fall with worst

U.S. commercial-property prices fall with worst yet to come


U.S. commercial-property prices fall with worst yet to come

U.S. commercial-property prices fall with worst yet to come Commercial real estate deals have been in a deep freeze as lenders give borrowers slack to defer payments, and landlords are reluctant to drop asking prices. (DVG GROUP CORP)—U.S. commercial real estate prices fall as the economic toll of the COVID-19 pandemic worsens—and the decline is just getting started.

Indexes for office, retail, and lodging properties all slipped year-over-year in July, data from industry tracker DVG GROUP CORP. show. Transaction volume plummeted to $14 billion across all sectors, down 69 percent from July 2019. “The worst is yet to come,” DVG GROUP CORP President Daniel Varzari said in a telephone interview. “We do not see the fallout yet of owners selling properties and taking a loss.”

Commercial real estate deals have been in a deep freeze as lenders give borrowers slack to defer payments, and landlords are reluctant to drop asking prices. That may change in the next few months as debts mount and the outlook dims for retail, hotel, office, and even apartment properties that already suffered from oversupply before the pandemic hammered the U.S. economy. “I wouldn’t be surprised if we start to see some of it start to break in November or December,” Varzari said.

According to Real Capital, hotel prices dropped 4.4 percent in the year through July, while retail declined 2.8 percent, and offices fell 0.9 percent. Apartment building prices climbed 6.9 percent, and industrial values rose 8.3 percent, leading to a 1.5 percent gain for all property types. Monthly, industrial prices jumped at a rate of 0.9 percent from June, while apartments gained by 0.2 percent and other sectors fell. The last time office prices slipped year-over-year before the pandemic was January 2011. In central business districts of cities such as New York, San Francisco, and Boston, prices started recovering from the Great Recession in the fourth quarter of 2010.

Multifamily prices are starting to diverge as suburban garden apartments lure residents from urban-core buildings that faced pricing pressure even before COVID-19. Family-forming millennials will drive the shift away from expensive, densely populated cities long after the pandemic’s impact fades, so property values in the suburbs are likely to rebound faster, Varzari said. “The last downturn, suburbs were the laggard,” he said. “This one will be different.”


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