New data from Real Capital Analytics shows that office sales dropped 70 percent in October from a year ago. That's a huge drop. There was a prior report that values in the last quarter dropped on sold properties. But that in itself didn't seem like a huge deal. It could have indicated that a section of buyers--those that largely depended on debt--have exited the picture (at least for now). With less bidders in the market, values should drop a bit. But the data from Real Capital Analytics seems a bit more alarming since it appears the effects of the credit crunch in the commercial real estate world are spreading faster than anyone had anticipated.
U.S. office building sales fell 70 percent in October from a year earlier, yet another sign the credit crunch that began in the U.S. housing market has spread to the commercial real estate market, Real Capital Analytics said on Tuesday.
But the five-year bull run on commercial real estate may not be over, although the participants have clearly changed, the real estate research firm said.
The credit crisis has weighed on U.S. commercial real estate and the office market in particular, making purchases funded nearly all by debt a thing of the past. Even lower- leveraged deals are harder to come by as borrowing rates rise and risk become a significant factor in obtaining a loan.
Update: This story doesn't mention retail real estate, but Real Capital Analytics monthly trends report (which you can get from the company) on retail has shown a 50 percent drop in volume on significant retail deals in both September and October compared with the same months last year.
Previous post on dropping commercial real estate values.