Sector fundamentals will drive improving market conditions, making a significant rise in losses on loans backing US commercial mortgage securitizations (CMBS) unlikely.
“Commercial real estate continues to benefit from limited construction and positive absorption, which have supported a positive market dynamic despite lingering concerns about the strength of the economic recovery” says Michael Gerdes, Moody’s Managing Director and Head of US CMBS & CRE CDO Surveillance.
“As in the fourth quarter of 2012, multifamily and hotel both performed strongly and will continue to do so over the next year, albeit at a more modest pace,” Gerdes adds. “The recovery of office and retail has been more muted, but performance will strengthen in tandem with employment and economic growth.”
Moody’s central global scenario hasn’t changed.
“It calls for subdued GDP growth in the US of around 2% for 2013,” says Gerdes. “Business confidence will strengthen as the economy continues to recover at a slow but steady pace.”
Among the individual sector highlights:
– The retail sector will have modest gains, with positive rental growth by the end of 2013. Consumers still appear cautious because of slow economic growth, but the sector is showing signs of life. Vacancy rates declined 30 basis points, the largest drop since 2005.
– Office vacancy and rental rates will improve moderately in 2013, with market performance differentiating according to regional employment growth. In addition, absorption is likely to continue to outpace completion in the next few months, which will assist in the sector’s continued slow but steady recovery.
– Hotel will continue to grow, but at a slightly slower pace. Year-over-year RevPAR (revenue per available room) was up 6.4% in first-quarter 2013 from first-quarter 2012, with the greatest increases in both chain scale and luxury and hotels. The top market performers were Oahu Island, Hawaii, and Miami-Hialeah, Florida.
– Multifamily will also continue to perform well. Absorption continues to outpace completions, and vacancy rates remain low. Rents are still growing but at a slower rate. Fifteen markets had vacancy rates below 4.0%, including Miami and Newark, both of which boasted vacancy rates of less than 3%.
The full report is available for Moody’s subscribers at http://www.moodys.com/research/Q1-2013-US-CMBS-and-CRE-CDO-Surveillance-Review–PBS_SF327646.