In One Chart: Commercial real-estate values slide 11%. Surge in 10-year Treasury yields won’t help, Barclays says.

How bad is it for commercial real estate? That depends on whom you ask.

Still, a repeat gauge of sales for August shows that commercial real-estate values fell about 11.3% from peak July 2020 levels, with some sectors down 20%, according to CoStar data.

Commercial real-estate values are down 11.3% from July 2022, but they have tumbled 20% in the multifamily sector.


CoStar, Barclays Research

While higher rates have been threatening borrowers and choking off transaction volume, a lot of attention has gone to California office buildings sold at big losses or when high-profile borrowers surrender the keys to lenders.

A Barclays team of analysts led by Lea Overby said current valuations rely on a “thin” data set, given that CoStar data has this year’s transaction volume at only $60 billion so far, putting it on track for the lowest volume year since 2013. They also said negative news could be painting too grim of a picture of the commercial real-estate market.

Overby’s team came into the year forecasting office property prices to drop 30% in this cycle, multifamily to fall 20% and for retail properties to decrease by 10%.

But broad drops in property prices usually take time to register, since most commercial landlords typically have long-term leases in place with tenants, which serves as a buffer during a crisis.

This year also marks perhaps only the start of something far worse to come, with an estimated $2.7 trillion wave of debt maturing through 2027 and the Federal Reserve’s forecasting higher rates for longer.

“Looking forward, we expect the recent rapid increase in the 10-year Treasury
BX:TMUBMUSD10Y
rate to above 4.5% to have further affected transaction volumes in September,” Overby’s team said in a Monday client note.

“This likely pushed up mortgage rates, denting returns and causing property investors to reassess pending transactions,” they said. “If the 10-year Treasury continues to hold at current levels, we would expect to see further price deterioration across CRE properties, in excess of our projections.”

Stocks were mostly lower Monday, with the Dow Jones Industrial Average
DJIA
0.3% lower, the S&P 500 index
SPX
off 0.3% and the 10-year Treasury yield surging 10 basis points to 4.66%.

The toll of higher rates also has been hitting popular exchange-traded bond funds with the iShares 20+ Year Treasury Bond ETF
TLT
and iShares Core U.S. Aggregate Bond ETF
AGG
on pace Monday for their lowest closes since 2007 and 2008.

Read: Renewed bond-market selloff puts popular ETF on track for lowest close since 2007

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