The Mortgage Bankers Association (MBA) has released its Commercial Real Estate (CRE)/Multifamily Finance Quarterly Data Book for 1Q11, showing the “turn of the real estate cycle.”
The economy hit its seventh consecutive quarter of positive growth, but did so at a less-than-optimum, revised, seasonally adjusted annual rate of 1.9%, the MBA said. While consumption and changes in inventory were also positive contributors, they failed to boost the CRE markets, the MBA said. High unemployment and a decline in government spending continue to hinder growth.
The MBA noted that real estate fundamentals have begun to stabilize and improve. However, the rate of recovery for this industry in particular is heavily dependent on the rate of economic growth overall.
Both transaction volumes and pricing and loan performance are slowly improving. Additionally, average vacancy rates for apartment and office properties dropped while remaining level for retail properties, according to the report.
The largest decrease was seen in the average apartment vacancy rate, which fell to 6.2% from 8% in the 1Q10. The MBA believes this to be only one indicator of the growing strength of the apartment market, with multifamily starts also rising.
The report also said that property sales volumes experienced the usual seasonal decrease between the fourth and first quarters. However, sales were up 70% more than in 1Q10. The industry group found that sales of apartment, industrial, and office properties more than doubled on a dollar basis from the levels recorded in the same period of last year, while sales of retail properties rose 60%.
Citing figures from the Moody’s/REAL CPPI and NCREIF TBI, the MBA stated that CRE prices continue to perplex as they fell in 1Q11after rising in the fourth quarter.
Commercial and multifamily originations also experienced a seasonal decline, and at a rate of 25% lower than what was seen in the previous quarter but 89% higher than figures from the same period last year.
The report also noted that the balance of multifamily mortgage debt outstanding rose 0.4% or $3 billion, which the MBA attributed to the increase in the balances held and insured by primarily Fannie Mae, Freddie Mac, and Federal Housing Administration.
Finally, the trade group reported that the 30+ day delinquency rate for CMBS rose 0.23 percentage points hit a record high at 9.18% 4Q10 and 1Q11.
The MBA concluded that for most property types, vacancy rates are still high while deal volume remains muted and property prices continue to be below their peaks, although the "natural ebb and flow of the real estate cycle is beginning to have an effect."
"Economic growth, couple with the natural cycle response of a constriction in new supply in the wake of a real estate downturn, is helping to stabilize and mend the commercial real estate markets," the MBA said. "The pace and shape of continued recovery will be driven by the rate of economic growth and by how investors and developers react to the market changes they see and foresee."