GLOBAL - US commercial real estate prices increased by 0.9% in May, rising for the second consecutive month, as investors warm to mid-range properties in smaller cities, according to Moody's Investors Service.

However, the Commercial Property Price index (CPPI), which measures price trends in the US commercial property market, is lower than 6.3% registered in May and 6.6% in the same period last year.

Despite signs of the "firming up of the market bottom", the recent shake-up in the stock market and a drop-off in the sale of commercial mortgage-backed securities could delay "significant gains" in property prices in the near future, Moody's said.

Asieh Mansour, head of research for the Americas at CB Richard Ellis (CBRE), said far lower growth in May indicate price gains are moderating. 

"The market has definitely bottomed, and a higher transaction volume is helping to support the CPPI even higher in June," he said.

Moody's said one positive trend is that investors are now less obsessed with trophy assets in major cities compared with the past.

It said the strong performance of the middle market - properties that are neither distressed nor trophy assets - has driven the upward momentum in June.

It also said the tightening of the 10-year Treasury yield had "offset widening loan spreads", leading to "attractive financing costs and increasing transaction volume".

However, transactions in distressed assets continue to account for a large share of the market. In June, it was a record 29% of all transactions.

In terms of relative performance, the office sector led the pack with a gain of 8.9%, followed by industrial (2.5%), apartment (0.6%) and retail (negative 0.3%).

June's total repeat-sales transaction was 254, its highest non year-end level since 2007, near the market peak. However, transaction volume only grew by 3.2%, due to interest in smaller-sized properties.

Tad Philipp, director of commercial real estate research at Moody's, said: "The stock and commercial property markets are both reflecting economic uncertainty. Widening loan spreads and diminished leasing expectations in the commercial property market will likely delay price recovery."