Moody’s: Commercial Real Estate Improving

Commercial real estate markets across the U.S. have shown either moderate improvement or were stable during the fourth quarter, according to a Moody’s Investors Service study.

The ratings agency said six of the seven property types in U.S. commercial mortgage-backed securities had ‘yellow’ scores last quarter–which indicates middling strength. Six of those showed some improvement, while only the multifamily sector had a strong score, which was unchanged.

Moody’s said the limited-service hotel and suburban office sectors showed the most improvement during the latest quarter. The five best markets in the U.S. were Honolulu, New York City, Los Angeles, the District of Columbia and California’s Orange County.

“The commercial real estate markets are continuing down the road to recovery, though the fact that most markets remain yellow indicates that a comfortable point of stability has not yet been reached,” said Moody’s Vice President Keith Banhazl.

Moody’s said 55% of all U.S. markets were in the ‘yellow’ territory during both the third and fourth quarters. However, in the third quarter 18% were in the red and 27% were green, while in the fourth quarter 12% were red and 33% were green.

More stability in those metrics comes after commercial real estate was pummeled during the recession as reduced occupancy rates and rents put pressure on property owners, often causing them to fall behind on interest payments.

Moody’s red-yellow-green report scores markets on a scale of 0 to 100, with the higher numbers indicating strength, and describing each portion of the scale in traffic light colors. Scores 0-33 are red, 34-66 are yellow and 67-100 are green. (credit wsj.)


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