U.S. commercial property prices fell by a single percentage point in July from the previous month. Rising interest rates are blamed for increasing the cost of financing deals.
The Green Street Commercial Property Price Index was four per cent higher than the peak it reached in August 2007, even with the decline, according to the California real estate research firm. This figure is based on the firm’s estimate of the value of real estate investment trust portfolios, which tend to hold high-quality properties.
The report stated that property values have had the advantage of a “robust recovery” over the past four years. As a result, they have been able to more than make up all the ground that was lost during the financial crisis. The recovery is currently on hold, since higher interest rates are putting pressure on pricing.
The higher interest rates, which started to climb in May, are threatening to dampen demand for commercial real estate. The yield on 10-year Treasury notes has increased from 1.63 per cent to 2.66 per cent since May, based on expectations that the Federal Reserve will scale back the pace of its stimulus plan.
The Fed is buying $45 billion of Treasury notes and $40 billion in mortgage debt each month to put downward pressure on interest rates. This includes up to $5.75 billion in Treasury notes maturing between May 2018 and April 2019.
The Moody’s/Real Capital Analytics national all-property index fell 0.6 percent in May from its April level, according to Moody’s Investors Service. The measure was up by six per cent from one year ago and is based on repeat sales that take place two calendar months before the latest report.
According to the Moody’s report, the results do not fully reflect the impact on prices of the recent uptick in the 10-year Treasury notes. The reporting agency expects that prices over the near term will either remain flat or decline.
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