According to Moody's Investors Service, the outlook for the major U.S. commercial property markets was ‘broadly stable’ in the first quarter of 2013, which reflects the current slow pace of both construction and absorption.
‘While overall levels of construction and absorption remained modest, strong revenue per available room (RevPAR) growth from the hotel sectors pushed the overall composite score up to Green 68, a one-point increase over the prior quarter,’ says Moody's vice president and senior credit officer Keith Banhazl.
Moody's Red-Yellow-Green quarterly property assessment report scores commercial real estate markets on a scale of 0 (weak) to 100 (strong) and describes them by traffic-light colors, with scores of 0-33 identified as Red, 34-66 as Yellow, and 67-100 as Green. The latest report reflects data from the fourth quarter of 2012.
The full-service hotel score jumped four points, to Green 67 from Yellow 63. RevPAR increased by 7.8% compared to the same quarter last year. Construction activity in the sector is still low, but increased. Upcoming supply increased to 1.5% from 1.2% last quarter. Twelve markets now have upcoming supply in excess of 2.5% of inventory, Moody's says.
The limited-service hotel sector experienced the greatest score change by gaining six points, to Green 72 from Yellow 66. RevPAR increased by 9.8% compared to the same quarter last year but still lags its baseline target. The 2.2% lag is the smallest since the third quarter of 2008.
The outlook for the six major gateway cities (Boston, Chicago, Los Angeles, New York, San Francisco and Washington, D.C.) is also broadly stable. Washington, D.C., is the exception.
‘The Washington, D.C., market is expected to underperform the major gateway cities as sequestration and Defense Base Closure and Realignment effects begin to show,’ Banhazl notes.
Other highlights of the report include the following:
- The multifamily composite score dropped four points, to Green 81 from Green 85, while remaining the highest-scoring sector. Vacancy worsened to 5% from 4.5% as supply exceeded demand for the sixth consecutive quarter.
- The suburban and central business district office sectors each dropped two points as upcoming supply increased by 0.1% in both segments. CBD office, Green 68, still leads suburban office, Yellow 53, by a considerable margin.
- Retail remained at Yellow 66.
- Industrial increased two points to Yellow 65 as vacancy edged downward to 12.8% from 13.1% the previous quarter.
- Miami was the only market to top more than one sector. It led the multifamily sector at Green 97 and tied San Francisco to lead the retail sector at Green 86.
More details can be found at the Moody's website.
