Commercial Property Feeling the Pinch

From the August 7, 2013 Wall Street Journal:

The Commercial Property Price Index, produced by research firm Green Street Advisors, fell 1% between June and July…

The volatile apartment sector saw the biggest monthly decline, losing 3% of its value in the last month.

Despite the dip, apartment values remain 8% higher than their 2007 peak.

“There’s a tug of war right now, between healthy operating fundamentals and rising interest rates,” says Jim Sullivan, a managing director with Green Street.

“Occupancy is rising, rents are rising, owners are staying full.…It’s resulted in a bit of a stalemate in the direction of property values.”

Commercial-property values tend to fall when long-term interest rates rise partly because many landlords are unable to increase leasing rates fast enough to keep up with rising costs, including debt service, capital expenditures and maintenance costs.