All in the picture:
The CPPI declined another 3.3 per cent in August, bringing it down to 105.37. Moody’s adds some additional commentary:
This is the lowest recorded result since the beginning of the downturn, surpassing the old recession level low of 107.98, which occurred in October 2009. National prices are 7.6% below the value recorded last year. Since the peak in October 2007, prices have fallen 45.1%.
We said in September that the index this year had been characterized by choppiness, with three months of increases and four months of declines. But this is the third straight monthly drop of more than three percentage points. If this keeps up, pretty soon it will be safe to say that the choppiness has given way to a simple downward trend (if it isn’t already).
Moody’s also finds that there is a growing return differentiation between performing properties (especially in big markets) and distressed properties:
Of the repeat sales transactions, performing trophy properties in major markets and other non-distressed properties evidenced a slight positive or a flat rate of return, respectively. Distressed assets, however, had a large negative rate of return and their decline outweighed the positives of the non-distressed assets. This tug-of-war between performing and distressed properties contributes to choppy index results.
On a somewhat more positive note for the long-term, Moody’s expects the CPPI to roughly track the CPI trend:
From the start of the decade through the beginning of the economic downturn, commercial real estate prices grew much faster rate than inflation. In June 2009, as the recession gained steam, commercial real estate prices fell below the CPI and have not yet rebounded to that level. If commercial real estate prices had tracked the rate of inflation since December 2000, the CPPI would currently be 19% higher.
Related links:
Choppiness continues for CRE – FT Alphaville
A mixed outlook for CRE and CMBS – FT Alphaville