Commercial real estate markets across the U.S. either improved moderately or were stable, according to Moody's Investors Service's Red-Yellow-Green study for the fourth quarter of 2010. Most property types in U.S. commercial mortgage-backed securities showed small improvements in strength.
‘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,’ says Moody's Vice President Keith Banhazl.
Yellow scores show moderate strength. Six of seven property types in U.S. CMBS had yellow scores last quarter, with the six also showing some improvement. Only the multifamily sector has a green, or strong, score, but its score did not change during the fourth quarter.
‘Red markets are growing increasingly rare,’ says Banhazl. ‘Though the concentration of markets across the property types still lies in yellow territory, it is now closer to the higher end of the yellow spectrum, with spillover into green territory.’
Specifically, 55% of all U.S. markets were in yellow territory during both the third and fourth quarters, Moody's says. However, in the third quarter, 18% were in red and 27% were in green, while in the fourth quarter, 12% were in red and 33% were in green.
Moody's Red-Yellow-Green report scores markets on a scale of 0 (weak) to 100 (strong) and describes them in traffic light colors, with scores of 0-33 identified as red, 34-66 as yellow and 67-100 as green. The new fourth-quarter study reflects data from the third quarter of 2010.
During the third quarter, the limited-service hotel sector showed the most improvement of any of the property types, experiencing a moderate seven-point rise to Yellow 53. Moody's notes that year-over-year revenue-per-available-room (RevPAR) grew significantly during the quarter for the limited-service hotel sector, from 5.1% to 9.1%.
The full-service-hotel sector rose three points during the quarter to Yellow 57. RevPAR was up 10.3% over the same quarter last year. The sector has a positive supply-demand imbalance of 1.1%.
The industrial sector picked up two points in the quarter to inch up to Yellow 59. The already-high vacancy rate remained stable at 14.1%, Moody's says.
The suburban office sector improved five points to Yellow 45 in the fourth quarter. The quarter saw the end of 10 consecutive months of the vacancy rate's increasing. The offices in central business districts improved two points to Yellow 62. While vacancy inched upward from 13.0% to 13.1%, projected demand grew from 0.1% to 0.3%.
Retail gained two points to move to Yellow 64. Despite a slight uptick in supply, demand increased to outpace projected supply by 0.1%.
The multifamily property type remained at Green 88, with the vacancy rate dropping slightly from 6.0% to 5.8%.
SOURCE: Moody's
