Study Published: Monday, 23 Aug 2010 | 10:52 AM ET Text Size
By: Reuters
U.S. commercial real estate prices posted their first quarterly gain in more than two years last quarter, data showed on Monday, although deepening economic gloom may cut post-slump celebrations short.
Average U.S. commercial property prices rose 2.2 percent in the second quarter, the first gain in more than 2 years.
After shedding about a third of their value between the first quarters of 2008 and 2010, average U.S. commercial property prices rose by 2.2 percent in the three months to end-June, as measured by the Investment Property Databank US Quarterly Property Index.
The milestone data ends a phase of writedowns that wiped out five years of property value appreciation before the credit crisis hit, but the London-based index compiler said a "mixed" economic outlook could arrest further price growth.
"The return to capital appreciation could be a brief one, with the economic picture worsening again," Simon Fairchild, Managing Director at IPD North America, said. "If this does prove to be a brief respite before further unwinding, investors will need to be prepared for setbacks with increased volatility in the performance of their investments."
The IPD US Quarterly Property Index tracks $77.3 billion worth of properties in predominantly core open-ended funds.
The average income return of these funds edged up 10 basis points to 1.8 percent in the three months to June 30, generating a total return of 4 percent over the quarter and taking the 12-month return to -0.1 percent.
IPD said some of the funds monitored had started to attract substantial inflows of new money although the overall aggregated position pointed to sustained redemptions, reflecting shaky sentiment among U.S. property investors.
Net outflows fell by 37.5 percent quarter-on-quarter to $347 million in the three months to June, notwithstanding the uptick in transaction activity, IPD said.
"At this stage in the cycle we would expect to see investors coming back in to buy assets at the re-priced levels but the overall net disinvestment reveals an inconsistent pattern of fund activity," Fairchild said. "At the prime end, the environment is operating as a sellers' market with prime stock-owners demanding premiums to consider transactions.
"All of this confirms that the pick up in the market is far from uniform," he added.
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