CRE Prices Tick up for First Time Since '07

Some good news on the commercial real estate front. The price of investment-grade CRE increased 4.4 percent in the third quarter, according to the MIT Real Estate Center. That’s the first uptick since the U.S. economy hit the skids in mid-2007.

“One quarter does not a trend make and we are still well below normal trading volume,” David Geltner, director of research at MIT/CRE, said in a statement. “Nevertheless, this is the strongest sign of a bottom that we’ve had in two years.”

The MIT “transaction-based index” reflects the price of securities backed by office buildings, retail stores and other commercial properties. In the second quarter, CRE prices as measured by the index fell 18.1 percent from the previous period, down more than 39 percent from a peak in the second quarter of 2007.

As Geltner suggests, it’s too early to call a bottom for the beaten down CRE market. And a rise in commercial property prices won’t save the scores of mostly smaller banks burdened by souring CRE loans.

As long as unemployment remains high — and that looks likely to continue for at least several more quarters — commercial buildings will continue to see high vacancy rates. Owners of those properties will struggle to repay their mortgages and refinance the loans when they roll over. That will put more banks out of commission.

Still, any sign of a turnaround in CRE is positive. Let’s hope it continues.