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Office Property Sales Rise Amid Encouraging Economic News

Office properties, which have languished over the course of the economic slowdown amid dismal unemployment figures, are showing some buoyancy. Office property sales jumped 122% in the year-to-date through the third quarter over the same period last year, according to a new report by the Mortgage Bankers Association (MBA).

The total sales volume of commercial properties rose 82% in the same period over 2009 levels, according to the report. However, that transaction volume of $60 billion still falls well below the level of earlier years.

Apartment sales leapt 97% in 2010 through the third quarter, while industrial property sales rose 59% and retail property sales, 48%, according to the MBA.

Yet the overall volume of sales falls far below the level of pre-recession sales, the MBA emphasized in the hefty, 103-page report.

Recorded prices per square foot increased, while cap rates declined. The highest cap rates, for industrial properties, fell to 8.4% from 8.6% a year earlier. Meanwhile, retail cap rates fell to 7.8% from 8.1%, and cap rates for office properties fell to 7.3% from 8.2% percent a year earlier. The lowest cap rates, for apartments, fell to 6.7% from 7.1% a year earlier, the report notes.

The pace of commercial mortgage originations, including multifamily, picked up during the third quarter quarter. Third quarter 2010 originations were 32% higher than during the same period in 2009, and 15% higher than during the second quarter of 2010.

On a year-over-year percentage basis, originations for inclusion
in commercial mortgage-backed securities (CMBS) grew a stunning 940% and originations for life companies grew 154%. Originations for banks fell 49% compared to the third quarter of 2009 and originations for Fannie Mae and Freddie Mac fell 16% year-over-year.

Life company mortgage commitments reached $9.5 billion in the third quarter, just $2 billion less than the 2007 third-quarter level, according to MBA.

Commercial and multifamily mortgage debt outstanding declined by $42 billion during the quarter, driven by a drop in loans held by banks, down by $30 billion, and in CMBS, which recorded a reduction of $12 billion.

The latest fiscal data is providing encouraging signs of somewhat stronger growth in real economic activity, the MBA says. “The most heartening developments have been in consumer spending, which rose at a 2.8% annual rate in the third quarter and appears to be on track to equal that gain in the current quarter.”

The sales level of durable goods has been stronger than the total, suggesting a more confident consumer, according to the report. During the second and third quarters, consumer purchases of durable goods, adjusted for inflation, rose at an annual rate of 7%.

The increase in fourth-quarter purchases of durable goods by consumers is expected to exceed the second and third quarter pace “by a comfortable margin,” the MBA reports.

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