The Moody’s/REAL Commercial Property Price Index (CPPI) reported its largest ever one-month increase of 6.3% in May. This is also the first rise in six months for the index.
Moody’s analysts believe that strong distressed asset pricing, climbing 4.8% in May, played a considerable role in this month’s increase. They noted that distressed transactions accounted for 27.0% of repeat sales, as opposed to 30% in April. They have also aided price recovery compared to them being a hindrance in the past.
The report cited significant returns from assets that were bought and sold after the real estate downturn as another important factor in the monthly overall increase.
"A number of transactions that were recorded in May had their most recent prior sales in 2009 as the market was beginning to bottom and subsequently traded for substantial returns," said Moody’s Director of CRE Research Tad Philipp.
May’s total transaction count was 174, consistent with the figures from April, but deal volume by dollar balance increased by 33.8% to $3.3 billion between the two months. The report said that the average transaction size for May was about 10% above the long term average at $18.9 million.
Moody’s analysts expect to see a pick-up in post-peak repeat sales, with transactions driving the CPPI even higher.
A Barclays Capital’s report from late June expressed similar optimism for the commercial real estate market, despite the negative CPPI performance seen in previous months.
Barclays analysts believe that the increased distressed prices in June “signifies that secondary and tertiary centers and finally beginning to participate in the CRE rally that had until now been restricted to primary centers”.