The impressive run-up in commercial real estate values may have finally run its course. This week, Moody’s Investors Service reports that U.S. commercial property values posted a 1.2% decline in September.

While the drop is relatively small, the monthly decline “might represent the inflection point in commercial real estate values given the ongoing liquidity crunch,” writes Moody’s.

Unlike other surveys that process appraised values, Moody’s monthly Commercial Property Price Index measures how the same assets trade over time.

“Given the current capital market environment, the prospect of a singular, one-quarter blip in prices seems unlikely,” reads one excerpt. Moody’s predicts greater price volatility and says prices may fluctuate downward over several periods in the near future.

The survey also finds that the values of individual property classes aren’t moving in lockstep. Prices for industrial properties, for example, climbed 3% between the end of the second and third quarters. Retail values also climbed 2.6% over the same period. But in the apartment and office markets, prices fell by 1% and 0.5% respectively during that period.

Big-city factor

Another finding: Assets located in the 10 largest cities outperformed the national average. During the third quarter, big city apartments posted a 0.1% price increase versus the national apartment market where values declined by 1%.

Office properties in the 10 largest cities sustained a 0.2% decline while the nation as a whole saw office values slip by 0.5%. The same dynamic unfolded among retail properties where prices for big city assets increased by 4.1% versus 2.6% growth for the national market.

If weaker economic growth pushes rental rates down over the coming months, property-level cash flow will suffer. For landlords who own high-value properties, that could be especially problematic, since so many of them are grappling with expensive mortgage payments.

Covering their costs may not get any easier. Boston-based Property & Portfolio Research (PPR) reports that the third quarter brought “stagnant or rising vacancies” throughout all property classes. The translation is that vacancy rates are no longer tightening in any property type — and PPR doesn’t expect “tightening” conditions to return until 2009 at the earliest.

Demand appears to be cooling. During the third quarter, office demand registered 22.6 million sq. ft. down 16% from the 26.8 million sq. ft. of net absorption posted in the second quarter.

“But demand is expected to fall off a cliff in the fourth quarter [due to] the slowing economy most notably,” reports PPR, which is calling for a paltry 15.2 million sq. ft. of office absorption this quarter.

In all property types, quarterly rent growth has passed its peak, PPR reports, saying that the slowdown is expected to continue.