Net operating income (NOI) for performing securitized loans were up 2.7% in 2014 from their original underwritten levels, signaling strong but uneven growth in the performance of U.S. commercial properties and Philadelphia commercial properties, according to the latest analysis from a leading commercial mortgage-backed securities (CMBS) bond rating agency.
Overall, Nomura Securities International noted a “healthy dynamic” of performance currently is in place for U.S. commercial real estate and for Philadelphia commercial real estate. This report recently was shared with Philadelphia commercial real estate broker Wolf Commercial Real Estate, a leading Philadelphia commercial real estate brokerage firm that represents a number of Philadelphia commercial real estate listings.
Across securitized assets involving U.S. commercial real estate and Philadelphia commercial real estate, NOI growth at lodging properties outpaced other property types, while multifamily-backed CMBS NOIs underperformed.
“Given the diversity of properties securing CMBS loans, we would expect that changes in NOI should reflect national trends,” Nomura analysts said, including both Philadelphia commercial properties and U.S. commercial properties in their analysis. “While employment levels across the U.S. have improved, building remains subdued (outside of the multifamily and lodging sectors), creating a healthy dynamic for commercial real estate performance.”
In contrast, the multifamily and hotel sectors have benefited from several years of strong growth due to dislocation in the housing market and increased corporate and leisure travel, respectively.
According to CoStar Group Portfolio Strategies, office and retail NOI is currently 1% and 6% below values seen in 2010, respectively. However, CoStar is projecting that both sectors will show improvement over the next few quarters. This is seen as welcome news for Philadelphia commercial real estate listings, according to the Philadelphia commercial real estate brokerage firm of Wolf Commercial Real Estate, a leading Philadelphia commercial real estate broker.
Office NOI has likely stabilized and should regain 2010 levels very shortly as new construction remains subdued in most markets and employment growth (especially in white collar sectors) has resulted in positive absorption, allowing owners to begin pushing rents, Nomura noted, citing CoStar data.
While retail vacancy among U.S. commercial properties and Philadelphia commercial properties is low in prime shopping locations, overall retail vacancy remains elevated, which has dampened demand for new construction, according to Nomura.
However, in spite of these headwinds, the sector is starting to see positive absorption as discounters expand into empty big-box stores and neighborhood centers are benefiting from a more positive economic outlook, as well as the growth in the single family housing market, Nomura analysts added. Such expansion is welcome news for U.S. commercial real estate and Philadelphia commercial real estate.
Across the four major property types, lodging properties showed the largest NOI improvement. The lodging sector saw an increase of 12% from underwritten levels, with 71% of loans reporting improvement in NOI. Growth in lodging, a key sector among current Philadelphia commercial real estate listings, is seen as positive by Philadelphia commercial real estate broker Wolf Commercial Real Estate, a leading Philadelphia commercial real estate brokerage firm.
Based on national trends, Nomura said it would expect the multifamily sector as a whole to perform more strongly as well. On average, these properties report a 3% decrease from underwritten NOI, versus a 3% increase across all property types, and almost a quarter report a decline in most recent NOI of more than 10% from underwritten levels.
For more information about Philadelphia commercial properties, please call 215-799-6900 to speak with Jason Wolf (jason.wolf@wolfcre.com), Leor Hemo (leor.hemo@wolfcre.com) or Lee Fein (lee.fein@wolfcre.com) at Wolf Commercial Real Estate, a premier Philadelphia commercial real estate broker that specializes in Philadelphia commercial real estate.
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