Wednesday, December 08, 2010

CoStar: Commercial Real Estate prices declined in October

by Bill McBride on 12/08/2010 02:15:00 PM

Update: Graph is from CoStar. I think it ends in October (but it appears cut-off).

This is a new repeat sales index for commercial real estate. Previously I've only been using the Moodys/REAL Commercial Property Price Index (CPPI) for commercial real estate.

From CoStar: CoStar Commercial Repeat-Sale Indices

• CoStar’s National All Property Type Index declined 3.88% during October, giving back its positive 3.07% gain in September.

• Reversing two months of increasing prices, all three of CoStar’s “headline” Commercial Repeat-Sale Indices decreased in October, continuing the recent see-saw performance of commercial real estate pricing.

• CoStar’s National All Property Type Index, representing all commercial properties and the broadest industry measure of commercial real estate transaction pricing, slipped to its lowest point since the index peaked in February of 2008. While still decreasing, the rate decline has begun to slow considerably. Since June of 2009 the rate decline has been reduced by half.

• The high volatility apparent in the market on a monthly basis is indicative of two prominent trends. First, monthly swings in pricing, sales volumes and average transaction size are common in markets experiencing a turn. Second, it reflects the tension in a market characterized by the majority of sales occurring at two ends of the spectrum -- distress sales at the bottom end of prices, and keen investor appetite, especially among REITs, for higher quality properties in core markets at the top end of the market. We expect to begin to see the extremes in range of prices replaced with more modest and less volatile monthly price trends when the proportion of distress sales begins to slowly reduce.
emphasis added
CoStar CRE Price Index Click on graph for larger image in new window.

This graph from CoStar shows the indexes for investment grade, general commercial and a composite index. All three indexes declined in October.

It is important to remember that there are very few CRE transactions (compared to residential), and that there is a high percentage of distressed sales, so prices are very volatile.