CRE Price Declines are Starting to Stabilize

Article originally posted on Globe St. on November 16, 2023

Trepp regularly watches property prices, using an index technique to show relative strength compared to some baseline year. Right now the Trepp Property Price Index, self-described as a “vital tool for gauging the health of commercial real estate,” has seen a continuous decline since mid-2022.

Quarter over quarter, it declined 1.8% in Q2 of 2023 and 5.4% since the end of Q2 in 2022. “This trend continues the decline in CRE property prices that began in March 2022 with the initial interest rate hike,” they wrote. “As interest rate hikes appear to be slowing down, some markets are showing signs of stabilizing prices.”

The compilation of the figures “is an equally weighted index derived from sales transaction data, utilizing a repeat sales methodology.”

Like an inverse of inflation, real estate prices are still falling, but that rate is slowing.

The amount depends on the type of property. Trepp has a chart showing property type and the percentage of properties sold at a loss in 2022 Q2, 2023 Q1, and 2023 Q2. • Industrial: 7.4%, 14.2%, 10.5% • Multifamily: 6.9%, 21.1%, 17.9% • Office: 19.2%, 23.7%, 20.4% • Retail: 16.9%, 23.2%, 22.1%

There are also disparities, as anyone in the industry might expect, by geographic region. As Trepp notes, “states such as Florida and Illinois exhibit a significantly lower percentage of properties sold at a loss in 2023 Q2 compared to 2023 Q1.”

In states that have seen worsening conditions — some increase in the percentage of properties selling at a loss between 2023 Q1 and Q2 — the actual counts of numbers of properties haven’t increased that much. California overall stayed at 15.3% in Q1 and Q2, which went from 426 to 443. Michigan went from 31.2% to 41.2%, but that was 16 in Q1 and 17 in Q2. Pennsylvania’s percentage increased from 15.5% to 22.2%, which was actually a drop from 58 to 54.

Part of this is the continued fall of transactions numbers. As multiple sources have been telling over the last 12 months, those who are selling properties are more likely than not in situations where they have to get rid of an asset, either to manage a maturing loan where refinancing would need an injection of capital or some other reason requiring a sale.

Trepp said that “price declines are, at the very least, starting to stabilize in many markets.”