Report Shows Continued Volatility in Key Sectors

MBA (8/14/2008 ) Murray, Michael
Higher volatility in multifamily and retail properties caused the the average cash-flow volatility score from Fitch Ratings, New York, to increase last year for the first time in four years, said Fitch’s Property Market Metric update.

Volatility in the multifamily sector rose to 2.50 in 2007 from 2.24 in 2006, ending a three-year streak of improvement, and retail volatility increased to 3.12 last year from 3.04 in 2006, the ratings agency said. The West and Southeast regions of the country accounted for the highest increase in multifamily volatility, the report said.

“There continues to be a glut of condominium units entering the multifamily rental markets, which should continue to keep multifamily property volatility on the rise,” said Bob Vrchota, managing director at Fitch.

Vrchota said the Northeast and Southeast showed the largest volatility rise among primary retail markets, based on new retail supply combined with the effects of cash-strapped consumers.

“Retail properties will likely continue to show increased volatility as softening macroeconomic conditions, high energy prices, a weak housing market and store closings are anticipated to impact retail performance this year and into 2009,” Vrchota said.

Fitch’s PPM said hotel properties improved slightly and office showed a modest drop in volatility levels—the fourth straight year of improvement. However, Fitch expects softening economic conditions will likely reverse the trend for both property types. Meanwhile, the industrial sector showed no change.

PMM evaluates 10 years of performance history and 10-year forecasts of cash flow volatility for each property type.