(Bloomberg) -- A years-long price decline for US offices could soon be ending as sales volume has stopped falling and large properties are being resold well below prior deal values, according to Moody’s Analytics.
“We are seeing signs that the market is beginning to function in a healthier way,” the firm said in a report dated Thursday. “A significant increase in price discovery paired with reaching a bottom in transaction volume means we could be nearing a bottom in office pricing.”
While “significant pain” has yet to occur and distressed offices will need liquidation at likely significant losses, the report added, “Owners and lenders are in a much-better position to evaluate potential losses today — which is the first step necessary to the market recovering.”
Office property values have slumped in the wake of the onset of the Covid-19 pandemic and subsequent drop in usage. That’s been compounded by higher interest rates. Some investors like Blackstone Inc. have said this year that real estate prices are bottoming, which would attract some buyers. However, the head of Starwood Capital Group contended that he saw a “huge distressed cycle ahead.”
For the 15 months through March, Moody’s Analytics found in public records just three office sales that occurred at a price more than $100 million below their prior sale. But there have been seven such deals since April 1, kicking off with a $416 million price drop on 1740 Broadway in midtown Manhattan.
“While sales like this are typically very painful for equity holders and often bondholders,” they “provide the market with a tremendous amount of price discovery — which had been lacking,” the report said.
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