February 22, 2010
Moody’s CPPI registered another gain for December. The index rose by 4.1% in December, following a 1% increase in November, marking the second consecutive month of increases.
Despite transaction volumes up dramatically over previous lows, and prices beginning to rise, Moody’s remains cautious on the future, citing in its report that “it would be naïve and aggressive to say that we’ve seen the worst”.
Though prices may be off their lows, there remains a lot of distress to work out in the marketplace. We’ve continue to emphasize the impact that resetting rents will have on property values, and we’ve all seen just how much it is costing landlords to land new tenants.
The good news is that the amount of fat left on deals is quite minimal, which will lend to stabilizing rental rates, at least in Silicon Valley. We’ve already seen some big deals signed, but over the next quarter we will see several high-profile lease transactions close as companies begin to make a “land grab” on the quality large chunks of space in the market.
The bad news is that the net absorption from these deals will be minimal, and as we’ve indicated will keep the pressure on the landlords of the B assets. As a value-add investor, one of the opportunities is therefore in the A asset (at the right price of course) with a large chunk of contiguous space as there will be takers for this space over the next 3-12 months. We’ve seen EOP and Lane Partners make some acquisitions over the past 2 months along these lines.
- Cornish & Carey Predicting a Flat 2008
- Crescent Down, San Francisco EOP Assets To Go
- Green Street Advisors: CRE Prices Up 10%
- Moody’s Commercial Property Price Index August Update
- Harmonic Leases 188K SF in North San Jose